How we can still shift our economy and society towards climate neutrality on time and why we will all benefit from it
Last Tuesday, the Intergovernmental Panel on Climate Change (IPCC) published a report that once again shows that humanity has no time to lose in tackling the climate crisis. According to the report, all current scenarios predict that global warming will exceed 1.5°C between 2030 and 2035, unless the global community adopts further measures to drastically reduce greenhouse gas emissions.
The next few years are thus crucial to put our economy on the path towards climate neutrality. The challenge is gigantic given the current high inflation and energy crisis. And yet the progress made in recent years shows that change is possible if the necessary political will exists. In Luxembourg, for example, electricity generated from renewable energy sources has doubled in recent years, public transport has been massively expanded at the national level and the climate goals for 2021 have been achieved.
At the same time, there is also movement at the international level. With the Inflation Reduction Act, the United States have launched a gigantic subsidy package to accelerate the sustainable transformation of the American economy and promote production in the US in the process.
Overall, this is good news for the climate. However, this development also shows that if we as Europeans do not want to become mere importers of key technologies in the future, we must also position ourselves strategically and work together to promote the establishment of a climate-neutral economy here in Europe more quickly than we have done so far.
The industrial sector faces a particularly big challenge in view of the large amounts of energy it requires. The good news: it already seems clear where the journey will go in the next few years, namely towards energy efficiency, electrification as well as green hydrogen. The task now is to organise this shift as quickly and easily as possible.
In addition to massive investments in renewable energies, this also requires an attractive offer of investment aid as well as the necessary price signals. Accordingly, the EU Commission recently adapted the state aid regulations to promote investments in the future. Now the possibilities of this new framework must be actively used.
In Luxembourg, there has been a subsidy programme of the Ministry of Economy since 2017, from which companies that want to make their production processes more sustainable, can benefit. However, the annual ministerial reports show that the yearly number of requests has decreased in recent years. An evaluation of this aid is therefore urgent in order to subsequently modernise it and make it more attractive.
In addition, the state should also link other aid given to companies to climate protection plans. In return for the state’s support, the companies would commit to drawing up a plan on how they can reduce their greenhouse gas emissions and resource consumption over the next few years.
The goal must be to give every company a clearly implementable perspective on how it can convert its activities to climate neutrality in the course of the next legislature, and to provide the necessary tools to do so. It’s time to get down to concrete action after the major economic strategies that have been drawn up in recent years, be it the Rifkin Report or the current work on “Luxembourg Stratégie”. For this to happen, all ministries in addition to the Ministry of Climate – from the Ministry of Economy to the Ministry of Agriculture to the Ministry of Finance – must understand climate protection as a priority of their policy.
No climate neutrality without tax reform
A McKinsey study estimates that in the EU alone, expenditures of about 28,000 billion will be needed over the next 30 years to achieve climate neutrality by 2050.
Given the prominent role that the state will have to play in this transition, be it through subsidies to companies or direct investments in public infrastructure, the climate transition can therefore only succeed if sufficient financial resources are available to the public sector.
Without a fair tax reform, which on the one hand sets incentives aimed at climate protection and on the other hand ensures sufficient tax revenues to finance future investments, there will therefore be no climate neutrality.
The next government must thus give top priority to a far-reaching reform of our tax system with the aim of implementing a socially just climate transition by supporting low and middle incomes and strengthening solidarity in our tax system, e.g. through fairer taxation of very high incomes and wealth.
Think global, act local
In addition to the necessary measures at international, European and national level, municipalities also have a responsibility in view of their far-reaching competences. This is particularly well demonstrated in the area of mobility. While at the national level there is more investment in the railways than anywhere else, many municipalities are still reluctant to consistently rethink their policies towards climate-neutral mobility.
The city of Luxembourg is the best example in this respect. While other capitals such as Paris or Brussels have managed an impressive change towards more soft mobility in recent years, the capital’s council of aldermen has failed to recognise any signs of change and fails to consistently invest in safe bicycle lanes and more space for pedestrians.
Despite the need for improved infrastructure, the number of bicycles counted at various stations in 2022 increased by a third compared to the previous year. Just imagine what would be possible if we started actively investing in a coherent and safe cycling infrastructure.
The municipalities are also required in the area of renewable energies. On the one hand, it is necessary to modernise outdated building regulations and thus remove obstacles to the energy transition, e.g. in the case of energy-efficient renovation and the installation of heat pumps.
On the other hand, municipalities can create greater acceptance for the energy transition through renewable energy cooperatives in which citizens co-invest and receive a share of the profits. Here, too, the potential is enormous: if all suitable roofs in the city were equipped with photovoltaics, solar electricity equivalent to 160% of the annual electricity consumption of city households could be produced.
We need to act now!
In 1972 – more than 50 years ago – the Club of Rome published its report “The Limits to Growth”. Since then, humanity has reacted only to a very limited extent to the ever louder warnings of the consequences of the climate crisis. The free market has often been invoked as the solution, and even today, proposals to regulate our economy for the sake of climate protection are flatly dismissed as planned economy by some public figures whose ideas remain stuck in the past.
The illusion that the free market will solve all problems through technological innovation and without state intervention still persists today and is often invoked by conservative politicians in Luxembourg in connection with the accusation of ideology. Yet nothing could be less ideological than implementing the necessary system change to leave a liveable planet for the next generations.
In view of the urgency of the climate crisis, it is now necessary to act consistently at all levels – international, European, national and municipal – and to think of social issues and sustainability as one. In doing so, we should not be afraid to further adjust our climate targets upwards in coordination with our partners – after all, as an industrialised country, we have a special responsibility. Because one thing is certain: if we manage to prevent the worst, we will all benefit from it.
First publication: Luxemburger Wort, 25.03.2023 (in German)