Climate policy and economic bust: The European challenges to create green stimulus

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Courtesy of Lexxion Verlagsgesellschaft mbH

National and international climate policies are in a crucial phase. While the EU is struggling to translate its ambitious emission reduction targets into legislative force, the international negotiators are heading for the Copenhagen conference under the UNFCCC. The financial and economic crisis challenges the climate goals in two dimensions. First, EU policy makers will need to defend their reduction plans in light of the economic downturn, as the issue arises whether climate policy measures are still affordable. This has become clear in the EU’s climate and energy package debates in late 2008, which have led to a softening of the cost impact from emissions trading and emission standards. On the other hand, the existing investment schemes for economic recovery could offer a double dividend, reducing emissions and stimulating the economy. This paper addresses these dimensions by, first, pointing out the short and the long-term cost effects of climate policy measures, second, by discussing the potential for a business-cycle stimulus from climate-friendly investment. In particular, the focus is on the EU situation where recovery plans meet with climate policy measures already in place. Finally, the EU policy approach on green investment, carbon pricing and international climate leadership is analysed with a view to the international climate negotiations, which suffer from the economic constraints, especially when it comes to developing countries and emerging economies.

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