The latest report by the Intergovernmental Panel on Climate Change illustrates the drama and speed of climate change. But despite all the bad news, efforts are worthwhile, says economist Sonja Peterson and explains how it can be possible to reduce CO2 emissions.
Capital: Was the news from the IPCC a surprise to you?
Sonja Peterson: Let me put it this way: the big lines were no surprise. It has long been known that climate change is man-made and that we are now starting to see the concrete effects. That was all known, but there are a few details in the IPCC message that I found surprising.
Which are they?
I am speaking from a political and economic perspective. I’m looking at which policies make sense to limit climate change. For me, two things in particular were very interesting again. On the one hand, the IPCC has presented new findings on how many emissions we are actually still allowed to emit in order to still achieve the goals of the Paris Agreement. That’s a bit more than the last estimates. The second was that the report says that it will be difficult to achieve the goals set – but that all the efforts will be worthwhile. The report says that every tenth of a degree avoided helps.
What do you take away from these two details of the report?
Of course, from the fact that we may still have a little more of our emissions budget left over, we should not, of course, draw the conclusion that we should now carry on as we are now. But it shows me that the often hot debates about remaining emissions may not be entirely effective for a single country like Germany. I found these discussions problematic even before the IPCC report. He has now confirmed it to me once again.
Why?
Because it distracts from how emissions can be cut as quickly and as effectively as possible.
What’s the second message you take with you?
It is derived from the fact that every tenth of a degree helps to contain climate change and is important. If we think in smaller pieces, we may not lose hope anytime soon. At the moment we are quickly getting into the mode that we have the feeling that all efforts are just a drop in the bucket anyway.
So there is halfway good news hidden in all the bad news?
Yes and no. All in all, of course, these are bad news, and the IPCC report once again makes the extent of climate change and its drama aware. We all see the consequences, the reports in the news don’t stop. Whether it’s the floods in Germany or the fires in the Mediterranean region. And we know that these will not be one-off events, but that they will only get worse. The report is another wake-up call – the two points I mentioned are nevertheless very important for our work, as they can be used to consider how we can ultimately achieve the reduction in emissions.
How come?
More and more countries have made it their goal to be climate neutral by the middle of the century. It’s a goal that we should take very, very seriously. And research shows us that it makes sense to do more now and not postpone everything to the later future. When we talk about climate change and climate protection, we are talking about very long investment cycles, there are a lot of durable goods, power plants have a lifespan of 30 or 40 years – this shows us that we should no longer make bad investments. But it also shows us that it may not be so important whether Germany emits two or three percent more or less in 2030. It is important that we are completely climate neutral by 2050 – and that we are on the right path by then.
In your opinion, what are the specific paths we need to take?
It is true that we have a specific CO2 budget available globally. The current estimate is the best landmark we have so far. We should orient ourselves globally to this and consider what fair share Germany or Europe should have.
What’s a fair share?
The problem with this is that the distribution of this budget cannot be clarified using purely scientific methods. That has to be regulated by politics. But I wouldn’t stiffen up in this discussion either. It is important that we name a specific amount of emissions that we can still consume. And then we have to reduce the amount of greenhouse gas emissions we emit year after year. I consider an emissions trading system to be a very good approach wherever possible. This is how we ensure that the goals are achieved and that market-economy mechanisms are at work at the same time. Using price signals, we can ensure that emissions are avoided where it is most sensible and cheapest and that the prices create incentives for innovation. Citizens and companies can orientate themselves on this.
So the market regulates it?
The market alone will not regulate it. The problem is too complex for that in many places. The EU has already implemented an emissions trading system and will expand it in some places. Emissions trading is relatively easy wherever coal, gas and oil are burned. Their consumption can be measured and converted into CO2 equivalents. But if we look at land use, for example, we have to realize that it is much more complex. Pricing is more difficult in this area. All in all, various accompanying instruments are needed so that we can achieve the innovations that we need. Nevertheless, I think that carbon pricing is a very important tool. For a very specific reason.
Which one is it?
Because this allows avoidance at the lowest possible cost and otherwise we would have to turn a great many individual screws. And so we leave a lot of freedom as to how companies and citizens can achieve the set goals.
That means companies have to adapt. Why should you participate?
Because otherwise they have no future in a climate-neutral world, because politics provides this framework. It is very important for companies that politicians give a clear direction. We see that in electromobility. For a long time there were hardly any clear guidelines and that suggested that things would continue as before. That can’t happen.
If we introduce rules in Germany, companies will simply move abroad where they do not exist, critics would now say.
Yes, that is true and that is a problem. In a dream world there would be the same rules for dealing with climate change everywhere, then this inequality would disappear. We also see a positive trend there. But we are not there yet. Until then, instruments such as a border adjustment can at least reduce the problem.
Sonja Peterson is a business mathematician and economist. Since 2002 she has been working at the Institute for the World Economy (IfW) in Kiel. Between 2006 and 2010 she headed the research area Environment and Natural Resources there. She is now responsible for research management and transfer.
Bastian Hosan spoke to Sonja Peterson. The interview first appeared at “Capital”.
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