Two laws that contradict best practice on climate action

It has almost finalised the laws on making cars more fuel-efficient and on renewable energy, but their potential to be a force for good will be strictly limited – and false economics is at the root of the problem.

There are two lessons you can learn from every textbook on climate policy, whether they come from IPCC, OECD, IEA, or any respected institution.

Firstly, energy efficiency has a massive unreaped and cheap potential, and should always be pursued first, ahead of promoting alternative forms of energy. 

Less energy is the best energy; negawatts are better than megawatts.
Secondly, industry needs investment security.  The transition towards sustainability generally requires massive upward investment before the rewards – in the form of lower energy bills for citizens, lower import bills, and lower carbon emissions – come in.
So what has the EU (almost) decided in the field of transport?  Two very important new laws are now in their very final stages: the one on more fuel-efficient cars – supposedly a ground-breaking law as it sets CO2 limits for new cars which for the first time will be obligatory – and the other on renewable energy, which includes a requirement for 10% of transport fuels to come from biomass by 2020.

More fuel-efficient cars can deliver massive and guaranteed savings in fuel costs, energy imports, and greenhouse gases.  But in its refusal to set a mandatory fixed target for 2020 now, the EU has not given industry the necessary investment security.  There is a nominal mandatory target of 95 g/km, but the law sets a review of this by 2013, and all observers, whether in the car industry or not, will wonder whether this review will lead to a weakening of the target.

By contrast, the biofuels requirement has very uncertain effects on fuel costs, energy imports, and even more on greenhouse gases – the law could easily lead to higher rather than lower greenhouse gas emissions from transport.  But this sad fact has not stopped the EU from providing investment security to the biofuels industry by fixing, without a review, a 10% target for renewable transport fuel.

In other words, the EU is prepared to give investment security for doubtful investments, but not to do the same for energy efficiency. Why?

I’m afraid the answer is simple.  Energy efficiency does not serve many special interests, and biofuels do.  In terms of national accounts: using less energy means less GDP, while using more biofuels means more GDP. In fact the more expensive the biofuel, the higher GDP becomes.  The fact that money spent on energy is in principle a waste and could be more productively invested elsewhere does not show up on national balance sheets or enthuse many industries.  On the contrary, a lot of industrial effort is required to turn agricultural or forestry products into liquid fuel.  All that effort counts as economic activity, whether it’s sensible economic activity or not.  All that effort also explains why biofuels are generally expensive too.

The EU has decided that security is needed for unproductive investments, not for productive ones.  Our cars will be needlessly inefficient and they will use needlessly high-carbon fuel. That is not only a great shame, but is also an illustration of why our current model of GDP and its definition of ‘value added’ is not serving the world’s need to adapt its economies to the dictates of environmental reality.