2010-07-21

OECD Secretary-General Angel Gurría has welcomed the call by ministers in France, Germany and the UK for Europe to adopt a 30% reduction in greenhouse gas emissions over 1990 levels by 2020. “Securing an agreement on greenhouse gases that will engage a wide enough coalition of countries to make sufficient progress is one of the most important outstanding items on the international agenda. It is encouraging that these countries are prepared to advocate an ambitious way forward.”

Mr Gurría noted that if countries were to take on the ambitious targets needed to minimise the risks of a global temperature increase in excess of 2oC, a cost-effective policy mix would be essential.  But contrary to claims from some quarters, he said that the 30% target need not imply heavy economic costs. “The bottom line is that we know what we have to do – cut the emission of greenhouse gases – and we know the least costly way of doing it. Acting now, and acting together, is the best way to tackle competitiveness concerns,” said Mr Gurría.

“If the EU takes on the more ambitious target of reducing emissions 30% by 2020, it could help to build support for a broader agreement, progressively encompassing both developed and developing economies.” The EU already has legislation in place to cut greenhouse gases by 20% by 2020 and has offered a 30% reduction, conditional upon other developed countries committing to comparable emissions reductions and developing countries contributing as well.

Recent OECD analysis “Costs and Effectiveness of the Copenhagen Pledges: Assessing Global Greenhouse Gas Emissions Targets and Actions for 2020”. suggests that the additional costs of raising the EU target to 30% would be moderate – about 0.3% of annual GDP in 2020 assuming linked carbon markets, compared with 0.2% for the 20% emissions reduction target and without linked markets. Moreover, achieving the target could provide an important source of revenue to contribute to fiscal consolidation and reduce rising government debt in the wake of the current economic crisis. For example, if the 30% target were to be achieved using auctioned permits in the EU ETS or carbon taxes, revenues of some 1% of GDP could be raised in the EU in 2020.

Some countries are concerned that signing up to ambitious targets would make their industries less competitive in the face of competition from businesses located in countries lacking similar climate policies. However, OECD analysis suggests that the economic costs of an EU 30% emissions reduction target would be in the same range as those incurred by many other developed and developing countries as they work to meet their Copenhagen pledges. While some energy-intensive and trade-exposed sectors face higher costs than others, governments have a range of tools available to reduce the impacts and smooth the transition to a low-carbon economy.