| The big issue: Tackling climate change has become one of the top issues for the new decade. Across most of the Western world, societies and markets are emphasising sustainability more than before. Ethical, sustainable and green investment has gone mainstream. Germany’s Greens party, which celebrates its 40th birthday today, has turned from a motley collection of unruly semi-anarchists into a responsible, mostly centrist party, ready for power. |
| Partial progress: EU greenhouse gas emissions have fallen steadily since 1990 (see chart). This largely reflects a reduced reliance on coal and much more efficient use of energy by households and companies. Since 2008, the US has also made progress roughly in line with that of the EU. Thanks largely to fracking, cleaner natural gas has replaced coal as the main source of electricity in the US. While the share of natural gas in generating electricity reached 38% in 2018 after a mere 15% in 2005, coal fell from 50% in 2005 to 28% in 2018. Starting at virtually zero in 2005, wind and solar energy now contribute 9% of US electricity generation. |
| Green shoots in the US: Although the Trump administration has pulled out of the Paris Agreement and softened many environmental rules, we expect progress towards a greener economy to continue in the US. Many states and municipalities are tightening environmental regulations. Major parts of civil society and the corporate world support a faster energy transition, and rapid technological progress is making it cheaper and easier to achieve. |
| Euros for future: Next week, the new EU Commission wants to present its proposals for a “green deal”. It aims to “mobilise” €1trn over a decade to put the EU on track to be carbon-neutral by 2050. As usual, the headline-grabbing number will include some grandstanding. As with the previous “Juncker plan” to raise investment, we do not expect an increase in aggregate spending of more than 0.1ppt of EU GDP per year. Still, the gradual redirection of up to 25% of EU funds towards green policy initiatives, and a range of credit and other incentives to give public and private investment a decidedly green tilt, can help to accelerate the pace of greenhouse gas reductions in the EU. |
| China counts: For the future of the global climate, emerging markets matter much more than the US and the EU. China is less poor than before, but the air quality in its major cities is often dismal. As China has started to care about pollution and climate change risks, its rise in greenhouse gas emissions has slowed since 2012. But much more needs to be done. With per-capita GDP less than half that of China, India has not even started the shift yet. |
| The role of the West: Beyond reducing its own emissions, the advanced world can set an example by showing that predictable, well-designed strategies to reduce emissions can work without curtailing economic growth. It can fund and spearhead clean technological progress and innovation. Cheaper ways to go green matter even more for the poorer world than the advanced. Beyond putting prices on its own CO2 emissions, the West can revamp its tariff systems to favour competitors that follow suit and put de facto CO2 import tariffs on those that do not. |
Holger Schmieding
Chief Economist
+44 20 3207 7889
holger. schmieding@ berenberg. com
Kallum Pickering
Senior Economist
+44 20 3465 2672
kallum. pickering@ berenberg. com
Florian Hense
European Economist
+4420 3207 7859
florian. hense@ berenberg. com
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