Experts from the intergovernmental panel on climate change have released their updated report. The small planet Earth has in its atmosphere the largest accumulation of carbon dioxide in the last two million years. The economic takeoff of the 20th century is unprecedented in history, especially since World War II. We humans are the cause of these emissions and the Earth’s temperature is rising faster than expected.
The recommendation is to reduce emissions and there is social consensus. The problem is deciding how to do it. And here the consensus is complex to reach. European funds prioritize this transition and the new Biden administration in the US is also championing the green transition. From 2007 to 2019, before the pandemic, both Europe and the US had reduced their CO₂ emissions. The challenge will require billionaire investments, public and private, and will generate millions of jobs in new sectors.
But China has increased them by 50% and India has doubled them. However, per capita emissions in both giants are still a long way from those of Europe and the United States. In the West, an emissions market has been created and polluting companies must buy those rights. The market allows internalizing the external effects of these companies in order to encourage production with fewer emissions. That market in Europe attracts many investors fleeing from negative public debt rates and demand pressure has doubled their prices. This mainly affects electricity prices and puts hundreds of thousands of industrial jobs at risk.
China and India continue to have hundreds of millions of people living in extreme poverty and in Europe and the US the new economy will increase employment and living standards. But in the transition there will be losers. It is a dilemma similar to that of the globalization process. Europe and the US have democratic systems and scientists issue their recommendations to governments. But it will be the citizens at the polls who will decide the path and speed of the transition.
The effects of emissions on the climate are complex and non-linear. And the social costs of the transition are too. For both reasons, the straight line towards the single goal of reducing emissions at any cost is very likely not the most efficient and quickest way to meet the challenge. The announcement of a diesel tax hike in France may become Emmanuel Macron’s political grave.
In Europe and Spain we are seeing it with the rise in the price of electricity. The pressure of consumption in China has raised gas prices to the highest since 2017 and that explains half of the rise in the price of electricity. And CO₂ emission rights also make it more expensive and generate social rejection. Regulation must be adapted to the new climate and technological reality. The risk is to go over planning, load the price signals and stop the investment in its tracks, which would lead us to fail in the challenge of reducing emissions.