Investment and growth in the time of climate change

253 Pages·2012·3.29 MB·English

Kolev, Atanas; Riess, Armin-D.; Zachmann, Georg; Calthrop, Edward
Research Report
Investment and growth in the time of climate change
Annual Economic Conference and Publication
Provided in Cooperation with:
European Investment Bank (EIB), Luxembourg
Suggested Citation: Kolev, Atanas; Riess, Armin-D.; Zachmann, Georg; Calthrop, Edward
(2012) : Investment and growth in the time of climate change, Annual Economic Conference
and Publication, ISBN 978-90-78910-26-8, European Investment Bank (EIB), Luxembourg
This Version is available at:
http://hdl.handle.net/10419/90708
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Investment and
Growth In the tIme
of ClImate ChanGe

Investment and growth in
the time of climate change
EconomicsDepartment(EIB)/Bruegel
Investmentandgrowthinthetimeofclimatechange
ByAtanasKolev,Armin-D.Riess,GeorgZachmannandEdwardCalthrop
©EconomicsDepartment(EIB)/Bruegel2012.Allrightsreserved.Shortsectionsoftext,not
to exceed two paragraphs, may be quoted in the original language without explicit
permissionprovidedthatthesourceisacknowledged.
PublishedbyBruegelonbehalfoftheEconomicsDepartmentoftheEIB.
Editor:StephenGardner
Production:MichaelT.Harrington
Cover:EuropeanInvestmentBank
EuropeanInvestmentBank
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L-2950Luxembourg
www.eib.org
Bruegel
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www.bruegel.org
ISBN:978-90-78910-26-8
AbouttheEconomicsDepartmentoftheEIB
The mission of the EIB Economics Department is to provide economic
analyses and studies to support the Bank in its operations and in the
definitionofitspositioning,strategyandpolicy.TheDepartment,ateamof
25economistsandassistants,isheadedbyDeboraRevoltella,Directorof
Economics.
AboutBruegel
BruegelisaEuropeanthinktankdevotedtointernationaleconomics.Itis
supported by European governments and international corporations.
Bruegel’saimistocontributetothequalityofeconomicpolicymakingin
Europethroughopen,fact-basedandpolicy-relevantresearch,analysisand
discussion.
Disclaimer
Theviewsexpressedinthispublicationarethoseoftheauthor(s)alone,and
donotnecessarilyreflectthepositionoftheEIBorBruegel.
Acknowledgements
TheauthorswouldliketothankPeterCarter,ChristopherHurst,KristinLang
andDavidKerinsforhelpfulcommentsatvariousstagesofthedraftofthis
report. Research assistance from Hendrik Meder, Francesco Nicoli,
ChristoforosSpiliotopoulos,MarcoSpringmannandMimiTamisgratefully
acknowledged.
Contents
Abouttheauthors v
Preface vii
1.Settingthescene 1
EdwardCalthrop,AtanasKolev,Armin-D.RiessandGeorgZachmann
2.Mitigate,adaptorendure:Aquestionofbalance 33
AtanasKolev
3.Boostingclimateinvestment 77
Armin-D.Riess
4.Greengrowthandgreeninnovation 159
GeorgZachmann
5.Commonthreadsandalittlesoul-searching 226
Armin-D.RiessandGeorgZachmann
Notes 231
iv Investmentandgrowthinthetimeofclimatechange
About the authors
EdwardCalthropisSeniorEconomistintheEnvironment,ClimateandSocial
Office of the European Investment Bank. After completing a Masters in
Environmental and Natural Resource Economics from University College
London,Edwardwentontocompleteadoctorateineconomicsfromthe
Catholic University of Leuven and a post-doctoral fellowship at Oxford
University.Hehaspublishedonregulationandinvestmentpolicytowards
networkindustries.Afteraperiodintherailindustry,hejoinedtheBankin
2006wherehehasworkedasaprojectanalystinboththetransportand
energysectors.
AtanasKolevisanEconomistintheEconomicsDepartmentoftheEuropean
Investment Bank. He joined the Bank in 2005 to work on the European
economy,Europeanregionsandbusinesscycles.Hisprimaryfieldsofinterest
aremacroeconomicsandappliedeconometrics.Recentresearchhasbeen
concentratedonbusinesscycleindicators,fiscalpolicyandclimatechange.
HeholdsaPhDfromUniversitatAutònomadeBarcelona.
Armin-D.RiessisEconomicAdvisorwiththeEconomicsDepartmentofthe
European Investment Bank. He came to the Bank in 1991 to work on the
economicandfinancialappraisalofBankinvestmentsinavarietyofsectors
andcountries.FollowingasabbaticalatStAntony’sCollege,Universityof
Oxford,heassumedresponsibilitiesrelatedtotheBank’seconomicresearch
programmeanditslong-termstrategicorientation.From2002to2007,he
was editor of the EIB Papers. Before joining the Bank, he worked at the
International Monetary Fund and the Department of Economics at the
UniversityofMainz,fromwhichhereceivedhisdoctorate.
GeorgZachmannhasbeenaResidentFellowatBruegelsinceSeptember
2009.HeisalsoamemberoftheGermanAdvisoryGrouponUkraineand
the German Economic Team in Belarus, advising policymakers in these
countriesonenergy-sectorissues.HepreviouslyworkedatLARSENinParis,
attheGermanMinistryofFinanceandattheGermanInstituteforEconomic
Research(DIWBerlin).HeholdsadoctoraldegreeineconomicsfromDresden
UniversityofTechnology.
Investmentandgrowthinthetimeofclimatechange v

Preface
Climate scientists mostly agree that, if current trends continue, global
greenhouse-gasemissionsareverylikelytoresultindangerousinterference
by mankind in the earth’s climate. Against this background, the world
community has set itself the goal of limiting the increase in the global
average temperature by the end of this century to no more than 2°C
comparedtopre-industrialtimes.Togetthere,globalemissionswillhaveto
fallsubstantially.
Largely focussing on the European dimension of this goal, this report
considersinvestmentandeconomicgrowthonagreenhouse-gasemissions
trajectorythatbreakswiththepast.Investment-relatedquestionsthatthis
reportpursuesinclude:howshouldEuropeproperlybalanceinvestmentin
mitigatinggreenhouse-gasemissionsandadaptationtoclimatechange?
Howurgentisittoinvestinboth?Howdoglobalcooperationonclimate
action and fear of climate catastrophe impact on the balance between
mitigation and adaptation? What are the key obstacles to climate
investment?Whichpoliciespromisetoremovetheseobstaclesandmake
investmentprofitable,therebyencouraginginvestmentfinance?Whatare
the respective roles of the private and the public sector? Growth-related
questionsinclude:howareclimateactionandeconomicgrowthlinkedand,
specifically,whatistheroleofinnovation?Arethereonlytrade-offsbetween
climateactionandgrowthoraretherewin-wins,too?Canclimateactionhelp
Europeemergefromitseconomiccrisis?Howcanclimateactionbemade
asgrowth-friendlyaspossible?
Inaddressingthesequestions,thisreporttakesaneconomicperspective.
More specifically, at the heart of the analysis is the quest for economic
efficiency. Not surprisingly for this type of analysis, a key theme running
throughthereportisoneoftrade-offsanddifficultchoicesthatsocietyneeds
to make. Cognisant of the fact that markets left alone will not make
economically efficient choices, another common theme is the role of
government policies in bringing about efficient outcomes. Considering
trade-offsandgovernmentpolicytogether,thekeymessagefromthisreport
isthatthereisunexploitedscopeformakingEurope’sclimateactionmore
efficient,growth-friendly,andintunewithfiscalconstraints.
Investmentandgrowthinthetimeofclimatechange vii