“Price is the main driver”
What political measures should be adopted to protect our planet’s climate, biodiversity and soils? Answering this question is the mission of FutureLab CERES, located at the Potsdam Institute for Climate Impact Research (PIK) near Berlin. The Werner Siemens Foundation began financing the project last year. PIK co-director Ottmar Edenhofer in discussion on how CERES is setting about the task.
Ottmar Edenhofer, the effects of global warming are becoming increasingly plain to see. Last summer, rivers nearly dried up, glaciers melted at a never-before-seen pace, and vast forest fires raged. How much more time do we have to turn things around?
To a certain extent, climate change is now inevitable. We can no longer stop it. We’ve already reached a global mean temperature increase of roughly 1.2 degrees Celsius. If we start reducing emissions now, we can hope to limit the increase to just under two degrees. In other words, we have no choice other than to adapt to much of what climate change will bring.
Is all really lost?
It would be an exaggeration to say that we’re heading for a precipice—and that when we get there, we’re bound to fall over the edge. When talking about climate policy, a marathon is the more apt metaphor. And to curb climate change, we have to reach the net zero mark by the middle of the century—that is, we must emit no more CO2 than the atmosphere can absorb. To get there, emissions have to fall by six to seven percent every year. We’ve only just begun the marathon race.
Have you observed that nations are more likely to enact climate change policies now that the effects are becoming more obvious?
An estimate made by our researchers shows that, already today, the social cost of climate change is over one hundred euros per metric ton of carbon dioxide emitted. The cost increase will be more dramatic the further away we move from the two-degree target. So it’s clearly more cost-effective to meet the Paris Agreement goals than to accept unchecked climate change. And still: emissions continue to rise. The war in Ukraine has accelerated this trend because the price of natural gas has risen faster than the price of coal, which is even more harmful to the climate. This development has once again made coal an interesting source of energy. Especially countries in Southeast Asia have begun opting for coal. By contrast, other nations have taken action. But, in total, it isn’t enough.
You also visit the various countries—Brazil, for example, or the Congo.
Yes, we’ve already conducted several case studies and we have teams on-site. That’s essential. It’s not enough for western European academics to sit in their offices and think about what these countries should do.
The Congo, where you’re conducting a case study, wants to auction off oil and gas production rights in thirty different regions, many of which are located in protected peat swamp forests that store carbon dioxide. Do political decisions like this influence your work?
Definitely. That the war in Ukraine has driven global investments in fossil fuels is particularly worrying. As just one example: Ecuador is pushing forward with oil exploration. This kind of information is relevant for policy recommendations. That’s why we’re seriously considering the option of having multilateral development banks buy up and then decommission coal-fired power plants—while simultaneously offering reduced-rate loans to encourage these countries to shift to renewable energy sources.
What does Russia’s war against Ukraine signify for your project?
It brings fundamental change. International cooperation projects are becoming much, much more difficult. And, as I said, coal is experiencing a renaissance.
So the war has had a negative impact on sustainability, climate protection and the environment?
Not only. It’s true that the war is driving demand for fossil energies, but two major players have also set ambitious climate goals: the EU with the Green Deal and the US with the Inflation Reduction Act. These are powerful signals.
The EU and US are global economic powers. For emerging and developing countries that rely heavily on selling energy or raw materials, it’s exponentially more difficult to enact political measures for sustainability and cushion any side effects with compensation. How can these countries find new sources of revenue?
This is a complex question that the CERES team is studying in our third work package. Many countries fail to diversify their economies as long as they’re generating large revenues. One measure would be for exporting countries to tax fossil resources. But there will also always be a need for decision makers willing to invest in alternatives. Some countries are trying. Others want to maintain their fossil resource business for as long as they can. Our job is to understand their reasoning and then advise them accordingly.
Which countries are looking for alternatives?
South Africa is thinking about how it can manage an orderly phase-out of coal. And if development banks offered to buy up the coal-fired power plants and pay off debt in Vietnam and Indonesia, I think these countries would be very interested in phasing out coal.
“The days of global appeals to morality are long past.”
At FutureLab CERES, researchers are investigating how global public goods like the atmosphere, oceans and biosphere can be managed sustainably. What more can be done when even the drastic events of the recent past have had no effect?
In reality, we’re flying blind. We don’t have an adequate understanding of which political measures to protect the climate have made a difference—and which have proven ineffective. The situation is comparable to a doctor who administers medications but doesn’t bother finding out whether, or in what combination, they improve their patient’s health. That’s why we’ve begun a large study at FutureLab. Our first step is to examine the EU’s transport sector. Where were emission reductions achieved? What combination of political instruments facilitated this outcome?
How are you proceeding?
With big data. We’re analysing massive datasets. What we already know is that most measures have done nothing. Only seven European countries have managed to reduce emissions in the transport sector.
Which countries?
Denmark, Finland, Germany, Ireland, Luxembourg, Portugal and Sweden. Our initial findings reveal that effective measures always involve pricing instruments—examples include a motor vehicle tax linked to CO2 or subsidies for renewable energies. This is a key insight, as it shows that price is the main driver. We now want to apply the research method globally.
That’s a lot of processing done by huge computers.
We have access to the large, high-performance computer at PIK, that’s a big advantage. But first we have to find a way to establish causality between a policy measure and an intended result. To do this, my colleagues at the institute have already developed several promising econometric methods. They collect and interpret data, all with the aim of deriving meaningful political recommendations. Because we’re looking back—but we’re also looking to the future. What will be effective? Which combinations of subsidies, taxes, standards and bans will bring about which results?
In a second work package, you’re conducting case studies in several countries.
That’s correct. We want to find out why governments continue to favour coal-fired power plants. To move away from coal, it’s often not enough for a country to see the negative impacts of global warming. The reason is that many nations see coal as a fundamental guarantee for their energy security. As such, we need more than a replacement for coal: we also need changes within these political systems. With CERES, we’re looking very closely at the economy and policies of different countries, and we’re asking: who is pursuing what interests and how could an energy transition work in these specific conditions?
You’re mainly investigating nations that are rich in natural resources but also very dependent on them—and that possibly lack the money to achieve a turnaround ...
... or that have lots of money, but whose elite classes benefit greatly from the export of fossil resources.
And therefore slow the transition.
We have to consider every aspect. If we don’t take the trouble to truly understand the various interests involved, we’ll never get anywhere. The days of global appeals to morality are long past.
In its fourth work package, CERES is looking at these kinds of international instruments and cooperation projects. But as you’ve mentioned, it’s currently hard to put them into practice.
Yes, that’s true, but Europe and the US are pursuing very similar goals. They could think about forming a type of “club” that obliges members to commit to specific goals. The club members could agree on a CO2 price and impose an import tariff on coal, oil and gas. They could also make climate-friendly technologies like carbon capture available. In light of the war in Ukraine, these kinds of ideas are promising. The German government has expressed great interest in this “club”, and we’ve already initiated discussions there. With the CERES project, we’re also examining how this kind of agreement might be structured.
But relations between the West and other states have deteriorated.
Tensions between China and the US are high, but the countries will have to cooperate on certain issues. I certainly hope that climate is one of them. We’re living in a world in which conflict and cooperation are increasingly interwoven.
What else has the CERES project achieved in its first year?
We’ve been able to hire good researchers. And we’re currently setting up a professorship for political economy. That said, we don’t have to wait for the professorship to begin our research. We’ve already made a good start, and we’re very much looking forward to tackling our research agenda with our new—and growing—team next year.
You’ve worked as a policy adviser on climate issues for quite some time. Is there a particular topic where you feel like a voice in the wilderness—an issue that politicians refuse to understand?
(Smiles) Yes. Climate- and sustainability-related issues pose the greatest dangers in the twenty-first century—but the dangers lie in the future. In politics, there will always be an event, crisis or trend that dominates in the short term. However, we should be thinking about the long term, because the interrelated crises surrounding sustainability, food, climate and biodiversity are escalating. This is actually what’s most worrisome: we’re dealing with multiple crises at the same time. We simply don’t have the luxury of solving one at a time—we have to work on all of them at once. It’s highly complex. The world of science acts like a radar that picks up the risks—and scientists must be able to advise policymakers.
How can researchers make themselves heard in the political sphere?
By offering impartial expertise—and being willing to be a pain in the neck. Also at PIK, our activities in the Intergovernmental Panel on Climate Change and the European Environment Agency enable us to maintain excellent networks in many different countries. For us, the CERES project is an additional reputational advantage: it helps open the doors of decision makers.
