If the destination is Paris, best travel by high-speed train

Summary

• Experts everywhere advocate coordinating emission reductions at the EU level.

• Still, strong arguments can be made for the Netherlands to do more than the EU demands.

• The chief reason is that this would help Dutch companies to be more competitive in the future.

We are heading towards ‘net-zero’ – the decision that the European Commission made last December confirmed this. Europe is not alone in pursuing that goal: the United States has made a similar commitment, and China believes that it will achieve the same target by 2060. The financial markets are adapting to the trend as well: BlackRock, the world’s largest asset manager, wants its assets under management to become entirely emission-free, and the recent World Economic Forum heralded the launch of a worldwide carbon market, where vast sums of money will shift to parties working to make emission reductions possible.

With this new certainty that ‘net-zero’ is our destination for 2050, the focus shifts from who will retain the remaining emission rights to how we can achieve this emission-neutrality. Frans Timmermans of the European Commission took the first step in this direction when he announced that Europe needs to achieve a 55 percent reduction by 2030 (relative to 1990) as a ‘pitstop’ on the road to achieving net-zero by 2050. He also translated that immediate goal into approximate reduction targets for separate sectors and industries. A study group headed by Laura van Geest (Chair of the Executive Board of the Dutch Authority for the Financial Markets, AFM) recently published a report of practicable measures for achieving those reduction targets.

Three routes

Entitled Bestemming Parijs: Wegwijzer voor Klimaatkeuzes 2030, 2050 (‘Destination Paris:Roadmap for Climate Choices 2030, 2050’), the report maps out our various options. Even if the 55 percent reduction is not necessary for the Netherlands, we should in fact scale up: as matters stand, it is likely that we will hit a 43 percent reduction by 2030, which is not good enough by any standard. The report essentially describes three routes to Paris: by slow train, by express train and by high-speed train.

The slow train approach means dragging our heels and doing the absolute minimum. We simply continue with the existing Climate Agreement, taking only the extra measuresdictated at the EU level across the economy overall, to achieve around 11 million tonnes of additional reductions. We will be ambling along, falling short of Europe’s targets.

The express train means matching the rest of Europe. We go along with Europe and abandonany plans of our own that pursue other goals, abolishing our national carbon levies as well as our subsidies (SDE++) for heavy industry. We leave the job of reducing carbon emissions to the European emission rights trading, which is already becoming very strict. This will achieve 16 million tonnes of carbon reductions by 2030. Relying heavily on the industrial sector to achieve limited emission reductions, while largely sparing other sectors such as mobility, this scenario will make the industrial sector less competitive.

The third option is the high-speed train, with all the advantages of arriving ahead ofschedule. This route involves significant measures across every part of the economy to yield a total of 27 million tonnes of additional reductions. So why should we do more than Europe asks of us? Europe already has an emissions trading system (ETS) that is designed to ensure that the most heavily polluting companies reduce their emissions first. Few of those companies are based in the Netherlands, and ‘logically’ we should limit our reductions during the initial years to ensure security of supply from our power stations. If we export that energy, power stations elsewhere in Europe that are much more polluting can scale down, with the ETS providing compensation. This is an understandable argument that experts make, and one that is often repeated in the financial daily Het Financieele Dagblad.

Doing more

Yet we also have ample reason to do more than Europe asks. First, maximising our reductionsis the cheapest option, in the same way as a volume discount: the per-tonne cost of reducing our emissions by 27 million tonnes is 202 euros against some 337 euros per tonne for a reduction of around 11 million tonnes (i.e. the bare minimum).

Second, the mid-term targets are liable to change. Between now and 2050, restrictions willneed to be tightened again and again to achieve the final goal. Any reductions that we can make now will benefit us further down the road, whereas delaying now could mean greater, and potentially more disruptive, measures between 2030 and 2050. As the world’s mentality shifts towards “what do we need to do to reach net-zero?” this will increase the likelihood not only of stranded assets, but also of radical policy changes. Normally, those changes reflect what is acceptable to voters, but court cases forcing the government to put commitments on paper into actual practice could trigger enforced radical policies.

A cushion for shortfalls

Third, we should create as large a cushion as possible to compensate for shortfalls whenwe reach the final stretch with the hardest yards. We are just setting out on this journey and low-hanging fruit is plentiful, but further down the road new ways to eliminate a single tonne of emissions will be few and far between. So we should not start by immediately using up our cushion to compensate for shortfalls.

The fourth argument lies in human nature: people are slow to motivate, but once we getstarted we find it easier to pick up the pace. Households need to consume energy in smaller volumes and from more sustainable sources, so it would be better to change this behaviour now and see later what further options remain.

The most important argument, however, is that a policy that focuses on reductions will help Dutch companies to stay competitive in tomorrow’s world. If they have to, policymakers, trade organisations and knowledge institutes can in fact work together very well. If we can properly map out the decarbonisation options for all the various sectors and achieve the right regulatory and pricing incentives, Dutch companies will be able to compete with a carbon-neutral licence to operate in markets that have closed their doors to polluters.

Send your comments to opinie@fd.nl. This article previously appeared in Het Financieele Dagblad.