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EBRD/LSE study unveils roadmap to low carbon economies in emerging Europe

By Anthony Williams

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Effective carbon pricing is key to a market-driven “green revolution” that could cut the carbon intensity of eastern European economies still grappling with the legacy of cheap energy, says a new report from the EBRD and Grantham Research Institute on Climate Change and the Environment at London School of Economics and Political Science.

The joint Special Report on Climate Change - The Low-Carbon Transition - maps out the policies needed to reduce carbon emissions in central and eastern Europe and Central Asia.

According to the report, emission reduction consistent with the goal of limiting the global rise in temperatures to 2°C requires large scale private sector investment in energy efficiency and low-carbon technology. Governments can encourage such investments through a combination of general economic reform, the introduction of a carbon price – which already exists in EU countries – and specific policies such as energy efficiency standards and regulations.

The report stresses that, in the context of the transition countries’ involvement in the global climate change mitigation efforts, there is no alternative to deep structural reforms and the introduction of carbon pricing. It warns emerging European countries that the cost of cutting carbon output will only rise the longer the appropriate steps are postponed.

“It is in the long-term self interest of the EBRD countries to be part of the energy-industrial revolution, adapt their economies and avoid being left behind,” the report says.

CO2 emissions from energy use have already fallen substantially in emerging Europe over the last two decades, driven primarily by the transition process of economic reform.

But the average decline in emissions throughout the region of 28 percent between 1990 and 2008 masks a very varied picture among individual countries and the region as a whole remains highly energy and carbon intensive. There is much more to do.

The report highlights carbon pricing as a necessary and effective route to reducing carbon emissions: “No other policy has the same powerful effect on emission reductions,” it says.

The report says that the likely economic costs of decarbonisation are low for most energy importers, particularly within the EU. But they are comparatively higher for energy exporters.

It warns that speed is of the essence especially for those high energy exporting economies that need to adapt their production and exports to the lower future global demand for fossil fuels in order to maintain economic competitiveness.  “The sooner this occurs, the lower the costs of mitigation,” said EBRD Chief Economist Erik Berglof.

The report says emissions trading and carbon pricing is doubly effective – both as an engine of clean energy innovation that encourages emission reductions within countries and by allowing emission reductions to occur in the countries where it is economically most effective.

 “Without functioning carbon markets or other mechanisms to generate predictable global prices for carbon emissions and dramatically improved policies the region will inevitably fall short,” it says.

But it also warns that introduction of effective carbon pricing is not a panacea and must be accompanied by steps that encourage private investment more generally.

“General economic reforms that are not specifically targeted at climate change but would remove energy price distortions and improve the business environment also have a powerful effect in creating profitable abatement opportunities, “it says.

The report recognises that policies that aim to reduce carbon emissions often face resistance from interest groups associated with carbon-based economic sectors.

However, governments can take steps to help them overcome such resistance, including informing the broader public about the economic and climate change consequences of carbon emissions and entering into international agreements that help policy-makers commit to good climate change policies, it says.

The Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science (LSE) is a centre for policy-relevant research, teaching and training in climate change and the environment.

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