"Redesigning Europe 2020 Strategy. Strengthening Green Growth and Green Jobs"

A Lecture by Alexander El Alaoui, Policy officer, Team German and EU Climate Policy, German Watch

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Biography

Alexander El Alaoui is Policy Officer for Financial Markets and Transformation Processes at Germanwatch, an environmental and development NGO. He is responsible for the research and commentary on sustainable finance and green investments vehicles among other issues. Before joining the organization, Alexander worked as Research Publication Manager at MDP, a London based boutique software and financial consultancy. He has also worked for several German Members of the Parliament, including then the President of the German Bundestag, Wolfgang Thierse and as political consultant at PEB. Alexander holds degrees from the London School of Economics and Potsdam University and was visiting student at UCLA and Ben-Gurion University.

"Redesigning Europe 2020 Strategy. Strengthening Green Growth and Green Jobs"

A Lecture by Alexander El Alaoui, Policy officer, Team German and EU Climate Policy, German Watch

 

Thank you very much. Maybe just as a starting point I would like to thank the researchers who are responsible for that progress report I think it was an excellent piece of work and I think you really put the light on the right spots; I was really happy to read it and I think we should continue communicating about this, especially with Paris 2015 ahead in just one year I think this debate couldn’t be more pressing in current times.

So what I’m going to do now over the next couple of minutes is to try and make a business case for energy transition based on the German model and then afterwards maybe in a couple of words introduce or suggest some policy changes that we think at Germanwatch you should adopt. I hope this doesn’t sound too prophetic but we think in many ways that we are standing at the crossroads of a new cycle, both in economic and social terms and as an NGO we like to think that there are many signs that the simple ‘business as usual’ model that we use right now won’t bring us far; we see disparities between the rich and poor grow; we see developing countries bearing most of the costs of industrialization of the Western Wall and we see companies still investing into fossil fuel energy which just doesn’t make any sense.

So for us the most urgent question really to be addressed is whether we want a great transformation to what is a completely new system overhaul and we have heard different concepts: we had growing economies, circular economy. Or, are we going to continue on our way to global apartheid as we put it where some fight to protect their luxurious lives according to the Western standards at the cost of those who wish for a better life.

So obviously we’d suggest taking the path towards transformation by which we mean taking steps to introduce a new growth model which I will be elaborating on in just a few minutes time. So when you give a presentation I think the golden rule is to never start with the graph but that’s exactly what I’m going to do. Here you can see that I plotted the prices for EWE, Germany’s second-largest utility company and as you can see, over the past five years I think sales prices dropped dramatically reaching almost a record low. Only yesterday the company announced that for the first time in post-war history, which is remarkable I think it made a loss of 2.8 billion; so what this graph shows to me is that the business model of energy supplies as we know it is completely falling apart and we heard this from the other presentation that innovation in energy technologies are forging ahead, costs of renewable energy is decreasing; solar panels cost nothing anymore. So we believe there’s simply no case for still powering money into fossil fuel, into coal pants and this is exactly what this company and other companies did and you can see the result.

The first challenge that needs to be addressed on the path towards sustainability, towards a new model and towards transformation is to rethink and really find the business model that these companies are really built on then we believe we are still going to use and need these companies in the future so we don’t want to destroy a whole industry but really redesign it. Utilities so far seem to have missed this opportunity and many analysts agree that for instances EWE have completely miss-judged market developments and I think that’s striking. However this is not to say that it’s only business that needs to react to evolving market conditions; I think it’s also down to politics that sets the political framework and I think we have heard that a lot today and I think it’s absolutely right in order to enhance private investments.

In my role at the organization I’m working on really focusing on the private investment side. So the question of how to we set this political framework is really at the core of what we believe. This means redesigning Europe and redesigning the 2020 strategy. So you see the business model dropping here and on the other hand you see investments don’t go enough into these new industries so why is it that investment do not go into these new climates, green innovative clean sectors and again I’m still talking about Germany in particular, why is it that EWE hasn’t adopted their business model to the new market conditions; well frankly we didn’t know so we went to representatives of the financial industry, big German banks, insurance companies and simply asked them, they unanimously said that it’s the lack of political will and rigour that minimizes incentives to do so and this was also a key word today, the incentives for businesses to switch strategies. Adding to that, it is striking to see that ever more private money is held outside the real economy, there was a figure last night in a German newspaper and I think it was Google who hold 100 billion just completely in their private hands; they bought their own shares back. So there is so much money, so much potential and there is so much opportunity but it is simply not going in the right direction.

We think the key mechanism in creating business confidence, because that’s what it’s really all about, is mobilization of additional investment and expectation management. I mean this is an economic term but it’s really straightforward because that’s what it is really all about and this line of argument rests on the results of a study did; it’s commissioned by all governments and undertaken by a wonderful members professor. I’d like to share maybe just a public insight of that report because I think it might be a good illustration of my argument and hear the key messages only by moving to what are binding climate goals. Peters said that earlier swelled binding climate goals, will investors be willing to assume responsibility and frank leadership and provide money for funding the energy transition, he think about central banks and much of what they do is sending signals to the market in order to steer economic behaviour and I think we can all agree that if central banks had not intervened in the past five years, the crisis would have created bigger losses. So that’s the simple logic and no matter what central bank you take, the principle underpinning that they are walking is always the same; it’s creating trust and reliability here so policymakers could learn from central bankers. We think that just by setting political goals regarding greenhouse gas reduction, energy consumption and renewable energy that policy makers can manage and stabilize the expectations which then can finance the energy transition.

 We have a huge financial investment gap in energy transition. I mean Germany was at the forefront of the inactive end of the energy transition but we still have lost a lot of potential, especially on the energy efficiency side and then he goes on and says that in the beginning only a few leaders will take that risk it’s not going to be a huge number of companies but a few but more and more other companies will invest and this will drive unit costs down and also create competition in the market which will create growth. This is precisely what you can see and this is what happened in the solar energy markets. Over the course of a few years, the prices went down considerably and solar electricity consumption when up dramatically. Back in the day, few people believed that the share of solar energy consumption compared to the total energy consumption of Germany would exceed about 1%; yesterday at SEK the latest numbers showed 5%. That projects that the impasse model of say 5 to 10 years ago.

I think that within the solar industry about one in one thousand jobs that have been created were in Germany which has lead to our own solar industry being only second in the world to China because recent movements there and once market conditions have changed to the way that we would like to see them, we will see the first signs of continuous growth of green growth.

We think that much like the central bank’s commitment to keeping prices stable and its affiliate would threefold the strategy which is again climate reduction, energy consumption, renewable energy. We have to do two things: one is to redesign the current 2020 plan and when we have it right we have to go on to make policy choices and think about how we can move beyond that time of 2020. This could be a theoretical trial, so let’s talk numbers now; the things we’d like to see. As I said, we are an NGO; we think about lobbies and we think about creating policy proposals and these things. First we think there should be absolutely no doubt that the common goal which is to have an almost completely free economy by 2050 has to be done and if we fail to stick to the goal then we will see sea levels rise particularly in the Netherlands, small countries and islands.

As I mentioned earlier, we need to fix the 2020 strategy which in its current version is simply too weak to be effective, this is what I liked about the report because you expect that exactly on that spot a swell and we see that because the way the ETS system, the Emissions Trading System, knowledge handled the prices are simply too low they don’t move investments; they don’t move companies out of the coal sector so we need to fix that. And with regards to the ETS this could mean two things: we would urge you to introduce several mechanisms and take some of the trade certificates out of the supply and by doing that you drive up costs and also to increase the annual reduction factor from 1.75 to 2.6. this might not mean a lot to some of you but in terms of business, it’s about how do I see the supply and demand of these certificates and how to I then steer the price of these certificates and put a price on carbon. Maybe even most importantly we need to set a bold 2020 strategy, a 20 percent emission reduction is simply too weak and it doesn’t move anything, we think it has got to be at least 30 percent. At the national level in Germany we currently asked the government to set even higher levels of carbon reduction.

I will come to an end if agreement on all these things can be reached; I think we might still have the chance to limit global warming. If however, Europe fails to do this if it does not take up this leadership position I think the outlook might be different. Thank you.

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