The European Green Deal: Turning Point or Too Little Too Late?

In the evening of the 18th of February, European Generation hosted the first event of the second semester. The main topic was the European Green Deal, whose aim is to make “Europe climate neutral by 2050, boosting the economy through green technology, creating sustainable industry and transport, cutting pollution”.

The event, featuring Dr. Antonio Navarra, — President of the Euro-Mediterranean Center on Climate Change — and Dr. Ivan Faiella, — Senior Economist at Banca d’Italia — was moderated by Prof. Miriam Allena, professor of Administrative Law at Bocconi University. During the conference, several crucial topics concerning adaption and mitigation towards climate change have been touched.

After a brief introduction, Prof. Allena gave the floor to Dr. Navarra, for a scientific perspective on the issue.

Dr. Navarra – Time is running for Climate Action

Dr. Antonio Navarra graduated in Physics and did his Ph.D at the Geophysical Fluid Dynamics Laboratory at Princeton University. His fields of research are the investigation of the dynamical mechanisms that control climate on a global scale and the simulation and evaluation of climate change through future climate scenarios.

He started his talk pointing out the difference between the perceptions of the public with regard to the climate crisis versus the scientist ones. From his experience, the scientific community has been discussing climate change for several decades. However, the media and the public, especially in Italy still treat it as an exceptional phenomenon. In particular, Dr. Navarra mentioned the remarkable work of Resources For the Future (RFF): an American nonprofit organization which conducts independent research into environmental, energy, and natural resource issues, mainly via economics and other social sciences. Founded in 1952, RFF became the first think tank focused only on natural resources and environmental matters. A collaboration between Resources For the Future and the Euro-Mediterranean Center on Climate Change has formed the European Institute on Economics and the Environment (EIEE).

Then Dr. Navarra, commenting on the validity of a policy instrument such as the European Green Deal in reducing emissions and transitioning to a climate neutral society, focused his considerations on the current level of greenhouse gases, estimated at 441 ppm (parts per million).

In his opinion, the slowdown in emissions at the European level in the last 25 years is certainly a good sign, together with new climate policies pointing towards such a direction (EU greenhouse gas emissions were reduced by 24% between 1990 and 2019, while the economy grew by around 60% over the same period). Nonetheless, the necessary time of carbon sequestration shall also be taken into account.

Carbon sequestration refers to the long-term removal, carbon dioxide from the atmosphere to mitigate global warming. This process, whether it happens through natural processes or with the aid of the most advanced technologies, takes a long time. Meanwhile, we are already beginning to experience climate-altering gases which continue to contribute to the alteration of ecosystems and to extreme phenomena.

Towards the conclusion, Dr. Navarra remarked the urgency and inevitability of taking immediate action with respect to the climate crisis: “I think the climate problem is the first problem of a class of problems we will probably – unfortunately – meet in the future”, he stated.

Dr. Faiella – The Advantages and the Risks of Climate Action

After Dr. Navarra speech, Dr. Faiella, — who is also Coordinator of the Bank of Italy Task Force for G20 Sustainable Finance — presented to the audience the complex subject of economic and financial transformation towards a sustainable future. He started by showing a visual representation of the most likely climate scenarios, assessed on the transition risks and the physical risks. The three scenarios, namely Orderly, Disorderly and Hot House World, are depicted in the following image, taken from a presentation on the occasion of the NGFS Climate Scenarios for central banks and supervisors that took place in June 2020.

Source: NGFS Climate Scenarios

The first two scenarios, Orderly and Disorderly, refer to a transition consistent with limiting global warming to below 2°C as intended by the 2015 Paris Agreement; the Hot House World scenario refers to a rise in the global average temperature over 3°C which would lead to severe physical risks. In delving into the different scenarios, as Dr. Faiella declared, it is clear that current efforts have to be focused on the first two possibilities. Nonetheless, when modelling the transition frameworks, economic risks must be carefully considered, so to ensure a smooth transition to a carbon neutral future.

Then Dr. Faiella engaged in the explanation of the so-called Kaya Identity, which takes its name from the Japanese energy economist Yoichi Kaya, who developed it. Such identity states that it is possible to express the total emission level of the greenhouse gas carbon dioxide as the product of four factors: human population, GDP per capita, energy intensity (per unit of GDP), and carbon intensity (emissions per unit of energy consumed).

[F = global CO2 emissions from human sources, P = global population, G = world GDP, E = global energy consumption, G/P = GDP per capita, E/G = energy intensity of the GDP, F/E carbon footprint of energy]

For practical use, it is a valuable tool to calculate emissions in terms of more readily available data. As well as highlighting the elements of the global economy, on which it is possible to act in order to reduce emissions. The Kaya Identity is also used at a policy level to develop future emissions scenarios in the IPCC Special Report on Emissions Scenarios, assuming conditions for future development of each of the four inputs.

Next, Dr. Faiella centered his speech on the opportunities and limits of the energy mix that is currently available to us and the one we will have in the future. Although nowadays the use of non-renewable resources is in decline, in particular for coal and oil that, according to many, have reached their peak use, the current energy mix is not ready to meet sustainably an ever-increasing demand for energy. In the following decade, we will see an increase in the use of renewable energy sources but, at the same time, the exploitation of natural gas, considered an aid in the energy transition, which would nonetheless bring several disadvantages.

In order to meet the demand, we will have to think of every possible strategy to be pursued. Dr. Faiella then declared that, in his opinion, “if there is an urgency for the climate transition, we need nuclear [energy]”. In fact, although with many disadvantages in terms of radioactive waste to dispose of, together with many security issues as well as the time required for the construction of cutting-edge nuclear plants, certainly nuclear energy could rather quickly deliver clean energy with a high energy potential. Obviously, the issue about the energy mix is a very sensitive and technical one and with a debate is still open.

Before the conclusion, Dr. Faiella dedicated a positive comment to the current trend of zero-emission and electrical technologies, especially in the automotive sector. This new trend, albeit not without its issues, is certainly a positive signal for future demand and must be encouraged.

Q&A

After the speeches of the two guest speakers, there has been space for a short but dense and meaningful Q&A.

When asked about the role of central banks in the green transition, and in particular, whether they will change their business model for the sake of the world and whether it is the role of a bank to do so, Dr. Faiella replied that the main idea is that central banks can finance projects they deem best. In particular, those that benefit both development and environmental, and this is very important to have a significant positive change. In essence, central banks definitely have a role and a responsibility in guiding the green transition.

Then, there was a question about whether the issue of climate change should be tackled starting from governments, central banks and other institutions or from the action of normal people all over the world. The key question focused on which way and how much people can contribute to solving the issue in their day to day life. Both speakers agreed that personal actions, in particular concerning lifestyle changes, are important. But they are only a small fraction of the solution: there is the absolute necessity of a shared effort between citizens and institutions. In a sentence, Dr. Navarra concluded: “Personal lifestyle changes are mostly symbolic, and the numbers are huge. I agree that people should be active and informed, but the best thing they can do is think hard before they vote”.

Along the lines of the first question, Dr. Faiella answered about the role of the private sector, in particular considering what incentives could be used to financing the green transition. According to him, private investors change their behaviour based on where it is better to invest. Therefore, their contribution is already happening without the need for excessive ad hoc incentives.

At two different times, the debate focused on the impact of climate policies with respect to current economies in the future: this change has already started influencing us today, and it will even more in the future, as we are gradually becoming climate neutral. However, the critical point concerns the speed with which this will happen. In fact, if the most disastrous effects of climate change will come upon us before sound climate policies are implemented, there will be room for speculation from those who surely are not interested in the protection of the environment. We are already seeing this possibility today: with arctic glaciers melting, new trade routes that reduce travel times from a few months to two weeks are opening. An ice-free arctic will pose serious policy implication which should not be underestimated: “There will be no climate policies but rather no policy will be decided upon without also taking into consideration the climate”.

The last question focused on the communication about climate change, particularly whether there is a way to ensure quality education on such a complex topic, but of the utmost importance. Dr. Navarra answered that, especially in Italy, there are issues in such communication, and it is clear the difference between the attention and the degree of detail of the foreign press. To him, a possible partial solution to the problem could be training courses on specific and technical elements of climate change, so to align the narrative to a higher and more appropriate standard.