Environment Directorate

A European Approach to the Climate Change Challenge


Remarks by Angel Gurría, OECD Secretary-General at the European Commission Seminar on Climate Change

Paris, 1st April 2008
Thank you for inviting me to provide opening remarks at this seminar. We are delighted that you chose to hold this event at the OECD. It is an excellent opportunity to share with OECD colleagues and delegations some of the recent developments in EC climate change policies and identify ways in which we can together move the agenda forward.

The European Union has taken a lead role in agreeing ambitious climate goals, such as  the 20% reduction in emissions by 2020, and in putting in place some of the policy instruments which can help to achieve these goals. This is admirable.

The establishment of the EU Emissions Trading Scheme (ETS) was a landmark achievement. In many ways, its first phase was a learning exercise – both for European countries and for all the other countries and regions now considering or implementing their own emissions trading schemes. Several lessons emerge clearly from the EU ETS experience: the need for good data on sectoral emissions and emission reduction possibilities, the benefits of auctioning emissions permits, and the political importance of addressing competitiveness concerns but in a way that does not reduce the effectiveness of the scheme, to name just a few.

Our recently released 2008 OECD Environmental Outlook shows that ambitious climate change goals are both affordable and achievable – but only if action starts now, if efficient policies are used, and if all countries work together. Under our baseline, world GDP is projected to almost double by 2030 and to triple by 2050, We simulated a cost-effective approach to stabilizing greenhouse gas emissions at 450 parts per million (PPM) over the longer term and found the costs of action to be 0.5% of GDP by 2030 and 2.5% by 2050. Adopting this option would require putting a global price on greenhouse gas emissions. The policy scenario assumed the introduction of a globally-harmonised carbon tax, which is pre-announced so that investors take rational decisions.

But don’t get me wrong -- affordable does not mean that action will be cheap or that it will be easy. In practice there are serious political challenges to reach such a global agreement and, within our countries, to applying least cost policies. European countries are clearly committed to ambitious action and to a global agreement. But the policies that are being put in place are not always the most economically efficient – and this is something which will need to be addressed. The EU targets for renewable energy sources and for biofuels in transport fuels are such examples. If you use less efficient policies, the costs of achieving a given target go up.

To keep the costs of action low there must be a strong emphasis on market-based policies to put a price on carbon. But these need to be accompanied by other instruments, such as regulations and standards (e.g. energy efficiency standards for vehicles and buildings), investment in basic R&D, sectoral and voluntary approaches to harness industry initiatives, and eco-labelling and information approaches to enable consumers to use their market power to reward green producers.

A concern that all countries have, and that emerged clearly in the recent EU Summit discussions, is that unilateral ambitious climate change policies may affect the competiveness of their trade-exposed sectors. Governments should aim to carefully manage the transition to a low-carbon economy, and to enable opportunities for growth and innovation in new sectors (e.g. renewables, energy efficiency). If energy-intensive sectors are instead exempted from the policies, the costs of action will increase significantly. Competiveness concerns can be addressed through international co-operation by creating a level playing field, sector-wide agreements or targets, and grandfathering some of the emission trading permits. But in the latter cases, the loss in efficiency and effectiveness of the policies should be weighed against the political pressures for their use.

There has also been some recent discussion, particularly in the EU, of the possible use of border tariffs to equalize the effective “tax” on carbon in traded goods coming into and exported out of Europe. If no global agreement is reached for a post-2012 framework, the EU might consider this to move forward unilaterally on ambitious action. But, given the problems this would raise, in particular regarding WTO rules and possible trade retaliation, this should only be considered as a last resort. For now, the focus should be firmly fixed on achieving an ambitious international approach, including participation by all the major emitting countries and sectors.

At the OECD we stand ready to continue our support to policy makers in identifying, developing, and implementing effective and least-cost policies to tackle climate change. We will be holding two Ministerial level meetings this year which will address climate change – the first will be a Meeting of Environment Ministers on 28-29 April, the second the OECD’s Ministerial Council Meeting on 4-5 June. At both events, Ministers from the major emerging economies will sit at the same table with their OECD counterparts. The EC will of course be participating in these discussions. Only together will we be able to move the global agenda on climate change forward, towards an economically, environmentally and socially sustainable development.