International Climate Policy

Interview with Prof. Hans Joachim Schellnhuber. He is Director of the Potsdam Institute for Climate Impact Research and a member of Deutsche Bank’s Climate Change Advisory Board.

Professor Schellnhuber, can you outline from a scientific perspective why there is an urgent need to take action on global climate protection? To be specific, how much time do we have left to achieve a turnaround in global greenhouse gas emissions?

The turnaround has to be achieved before the end of this decade. Those who dismiss this as unrealistic ignore the realities of physics. Even if we want to achieve the objective of limiting global warming to 2°C more than in the pre-industrial age with only a two-thirds probability, greenhouse gas emissions must fall by 2020 at the latest. The 2°C is a figure on which the international community has reached a political agreement – based on numerous scientifically-backed arguments, because at this level the ramifications of climate change are expected to be relatively manageable. With an increase of more than 2°C we would enter a new world with risks on a completely different scale. Those wanting to initiate the energy turnaround later will make this more unrealistic rather than more realistic, because emissions would then have to decline abruptly instead of gradually, which is more difficult to implement. And the turnaround would become more expensive. The International Energy Agency recently declared that the too timid resolutions passed at the Copenhagen Climate Conference will cost us all USD 1 trillion – because investments in green technologies will be made later und then under massive time pressure. This trillion dollar total indicates the scale of the task.

Which are the key political and technological decisions that need to be made over the next 10 years in order to avert perilous climate change? And which technological innovations promise to provide the greatest ecological stimulus?

I like to talk about the seven cardinal innovations. They include supersmart grids that finally integrate renewable energies in such a way that manages their power fluctuations. Then there is the positive-energy house, which generates energy instead of consuming it, and electromobility. At present it is not the engineers who appear to be lacking inventiveness but rather the politicians. If the industrial nations continue to base their reduction obligations only on their own emissions at different – more or less arbitrarily chosen – dates in the past, we shall not make any progress. We need globally equitable burden-sharing in tackling climate change, not just for reasons of fairness, but also for reasons of enforceability and efficiency. Emissions growth of the future will occur in Brazil, India and China. This is where efforts have to be focused. From a physics point of view and taking into account the 2°C target, we can probably still pump nearly 750 billion tonnes of CO2 into the atmosphere until the end of this century. What would now be needed is for emissions rights to be distributed equally on a per-capita basis for each of Earth’s inhabitants – and a global system for trading these rights. Apparently decision-makers currently lack the foresight to agree such a global deal.

One year ago expectations were high for the Climate Conference in Copenhagen. There were hopes of a major breakthrough in international climate policy. The outcome was, however, modest. What do you now expect to emerge from the next climate conference being held soon in Cancún, Mexico?

I don’t expect much, but some toying with expectations is also occurring. In the end minor progress in an area such as forest conservation will presumably be celebrated as a major success because expectations were so low beforehand. What would be crucial, however, would be for the 2°C target that was nevertheless agreed in Copenhagen to now be underpinned with binding emissions reduction measures. Those who release governments from this expectation may do the latter a favour – but not our planet.

The Copenhagen Accord lacks concrete statements concerning the market instruments for pursuing climate policy such as emissions trading. What prospects do you see for these instruments in the next few years?

A price has to be placed worldwide on greenhouse gas emissions that is derived from an ambitious reduction target. Only then will production, consumption and innovations be directed towards climate compatibility. The European emissions trading system has now become a model in many a respect. However, its price signal has hitherto been rather weak because the emission limits were not stringent enough. This needs to be improved. If the European trading system could then be linked with that of other countries or regions this would constitute one step towards the global system that is ultimately required. It is the European Union’s responsibility to take action on this issue.

The progress in multilateral climate conferences has very often been limited up until now, because of the very different interests of industrial nations, on the one hand, and those of developing countries and emerging markets on the other. How do you see the role of financial and technology transfers in mitigating this conflict?

This is the pivotal issue. Climate change does not stop at national borders, it is bringing about a truly global shake-up and therefore we need a cooperation revolution. We must provide emerging markets the technological and financial capabilties to skip the fossil-fuel-based development phase of industrialisation and move straight to green technologies. Helping them to do this should be in our national interest. This would of course entail costs, but we would profit from this outlay. Climate targets without concrete instruments for enforcing them are in any case of little value.

Leaving aside Cancún, what unilateral action could and should Germany take?

Germany’s federal government has laid down targets for reducing greenhouse gas emissions that are absolutely right. A 40% reduction by 2020, almost complete decarbonisation by 2050 – these figures are in tune with the reality of the physics of climate change. At the EU level the 30% reduction figure should be retained. As a technology pioneer Germany can take that opportunity to show the world how ambitious climate protection can work. The key factor here, however, is credibility. Recently the government prevented improvements from being made to the setting of EU-wide emission limits for light commercial vehicles – to the delight of the automotive industry, according to reports. Such action does not chime with the function as a role model that Germany could perform. Specifically, the expansion of renewable energies in Germany should continue to be promoted. This is the only way that the costs of these technologies can be further reduced – for the benefit of all.

The financial industry is not only a major player in international climate policy on account of financing environmentally friendly technologies. Which expectations and recommendations do you direct towards the financial sector?

Banks and insurance companies have to be aware of their social responsibility. Some are further down this road than others, but overall I still see – as they say – upside potential. The financial industry should gear its business more towards sustainability, that is away from short-term – and in many cases also senseless – speculation towards providing capital for productive purposes. We need to spend huge sums in order to achieve the great transformation in energy production and to boost energy efficiency in households and industry. In Germany as in other developed countries, however, net investment is at a historical low. An active role of the financial sector in this growth market, accompanied by a government framework for investment incentives would be important drivers. Another area where action needs to be taken is in the adaptation to climate change. This requires, for example, that small-scale farmers in Africa can buy themselves low-cost insurance against crop failures. If the probability of poor harvests increases, such financial instruments are essential so that those affected can bridge the economic gap from one year to the next. This will require insurers to venture into unfamiliar markets. In any event, business as usual should no longer be an option for the financial sector.

This interview was conducted by Eric Heymann and Tobias Just, Deutsche Bank Research