Enigin Update - EBRD Warn of Insufficient Climate Action
THE EUROPEAN Bank for Reconstruction and Development (EBRD) report claims that insufficient support is holding back climate action across the former Soviet bloc countries and into central Asia.
The joint Special Report on Climate Change “The Low-Carbon Transition”, by the EBRD and Grantham Research Institute on Climate Change and the Environment at London School of Economics and Political Science, maps out the policies needed to reduce carbon emissions in central and eastern Europe and Central Asia.
According to the report, emission reduction consistent with the goal of limiting the global rise in temperatures to 2°C requires large scale private sector investment in energy efficiency and low-carbon technology.
Governments can encourage such investments through a combination of general economic reform, the introduction of a carbon price – which already exists in EU countries – and specific policies such as energy efficiency standards and regulations.
The report stresses that, in the context of the transition countries’ involvement in the global climate change mitigation efforts, there is no alternative to deep structural reforms and the introduction of carbon pricing. It warns emerging European countries that the cost of cutting carbon output will only rise the longer the appropriate steps are postponed.
“It is in the long-term self interest of the EBRD countries to be part of the energy-industrial revolution, adapt their economies and avoid being left behind,” the report says.
CO2 emissions from energy use have already fallen substantially in emerging Europe over the last two decades, driven primarily by the transition process of economic reform.
But the average decline in emissions throughout the region of 28 percent between 1990 and 2008 masks a very varied picture among individual countries and the region as a whole remains highly energy and carbon intensive. There is much more to do.
The report highlights carbon pricing as a necessary and effective route to reducing carbon emissions: “No other policy has the same powerful effect on emission reductions,” it says.
The report says that the likely economic costs of decarbonisation are low for most energy importers, particularly within the EU. But they are comparatively higher for energy exporters.
It warns that speed is of the essence especially for those high energy exporting economies that need to adapt their production and exports to the lower future global demand for fossil fuels in order to maintain economic competitiveness. “The sooner this occurs, the lower the costs of mitigation,” said EBRD Chief Economist Erik Berglof.
The report says emissions trading and carbon pricing is doubly effective – both as an engine of clean energy innovation that encourages emission reductions within countries and by allowing emission reductions to occur in the countries where it is economically most effective.
“Without functioning carbon markets or other mechanisms to generate predictable global prices for carbon emissions and dramatically improved policies the region will inevitably fall short,” it says.
But it also warns that introduction of effective carbon pricing is not a panacea and must be accompanied by steps that encourage private investment more generally.
“General economic reforms that are not specifically targeted at climate change but would remove energy price distortions and improve the business environment also have a powerful effect in creating profitable abatement opportunities,“it says.
The report recognises that policies that aim to reduce carbon emissions often face resistance from interest groups associated with carbon-based economic sectors.
However, governments can take steps to help them overcome such resistance, including informing the broader public about the economic and climate change consequences of carbon emissions and entering into international agreements that help policy-makers commit to good climate change policies, it says.
"Achieving international climate goals will not be possible without a carbon price, in Russia and the whole region," said EBRD chief economist Erik Berglof.
The EBRD report found that governments could also boost emissions cuts by liberalising energy prices, supporting renewable energy and introducing efficiency standards, following an in-depth study of Russia and Turkey.
"The 2009 policy framework in Russia and Turkey is shown to be patently insufficient," the report said, while noting that useful laws were planned or had been passed.
The report pointed to the influence of powerful fossil fuel lobbies in Russia and Ukraine.
"The carbon-intensive industry in Russia is extremely powerful, and ... has long enjoyed close links to the Kremlin: before his election, President Medvedev served as the Chairman of Gazprom, a state-owned energy company," it said, while adding that Medvedev had "embraced" the issue of global warming.
Russia and other former communist countries have a legacy of energy waste from an era where state-owned companies didn't have to compete in liberalised markets.
The report found that in Russia subsidised household power prices were holding back efficiency investment, by making it too cheap to waste high-carbon, fossil fuels.
Previous McKinsey studies had under-estimated the costs to private investors of driving emissions cuts, by discounting such factors, as well as investment risk, the EBRD report said.
The EBRD focused on private investors, who face a higher cost of capital than governments.
"Many of the abatement opportunities deemed to be money-saving are unlikely to be financially viable in the marketplace," the report said.
Political instability was also holding back long-term investment in some countries such as Ukraine, where inefficient steel mills needed funds for modernisation.
"In Ukraine the business environment is the number one obstacle," said Berglof.
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