A stern warning about the need to cut fossil dependence

This report by Nicholas Stern, the ex-chief-economist with the World Bank, was commissioned by Gordon Brown, the British finance minister and probably next UK prime minister. It is not the first report on the economic impact of climate change, but it has captured most interest, perhaps because it comes after all these high-profile developments. Stern, who had no views on climate change when he started, said climate change represents a bigger threat to the global economy than the two world wars of the last century, and taking strong action is a lot cheaper than doing nothing and waiting for disaster to happen.

Some economists criticised the report, yet the underlying assumptions not only seem robust but Stern has played very safe with what he has included. His report does not even take into account that virtually all OECD countries – those that use the bulk of the world’s energy – are huge net energy importers, not least of oil. And that these countries, if they could lower their demand for that oil, would not only import fewer barrels but cause the price to go down. For net energy consumers, the case for using less energy in general, and less oil in particular, is even more compelling than Stern has pictured.

Using less fossil fuel used to be a favourite topic only for the environmental movement. The Stern report and the critical energy situation make it clear that the issue has much broader appeal, and very slowly this awareness is trickling into broader politics. It is hoped this context will influence the three very important energy and climate topics in transport that will be debated over the next few months: the follow-up to the car makers’ voluntary CO2 commitment, the review of the biofuels directive, and the inclusion of aviation in the Emissions Trading System.

Unfortunately, the car lobby, Acea, seems unable to produce helpful comments on enhancing the fuel economy of cars, because the better half of its members stands to gain a competitive edge over the worse half. Then the only way out for Acea is to point to options like driver education or simply say “stop”. The biofuel industry and the farm lobby will oppose the replacing of volume-based biofuel targets by carbon-based targets (which favour good biofuels over bad ones) and biodiversity certification. This overlooks the fact that failure to move in this direction is an immense business risk because their business is built on the fragile (but still broadly favourable) public image of biofuels – it only takes a few sharp documentaries to change that. And on aviation, the Bush administration is still trying to do everything in its (dwindling) power to stop Europe spreading its climate policies across the Atlantic – this despite the fact that the administration is by the day less representative of the American people’s opinion on energy and climate issues.

The challenge for Europe’s politicians and officials will be to keep the bigger picture in mind – that action is cheaper than inaction. Acting with the environment in mind is not a nice idea to keep the countryside looking beautiful but a matter of sound economics. This are excellent opportunities for Europe to show that it can withstand narrow sectoral lobbying and act for the greater economic and environmental good.

This news story is taken from the November 2006 edition of T&E Bulletin.