Framework and financing of climate neutrality by 2050

In its study "Climate Paths for Germany", BDI concludes that a 95 percent reduction of climate-damaging greenhouse gases by 2050 in Germany alone will require investments of up to 2.3 trillion euro - and that this will only be possible with optimal political coordination and international efforts. It is therefore important that the Green Deal has a diverse financing strategy. In order to trigger such investments, considerable shifts in national budgets for the public sector are necessary - in favour of necessary infrastructure investments, tax incentives and support measures for private investments in technologies already available. These, however, cannot yet be offered at a marketable and cost-effective rate. Moreover, in some areas, research and development is needed first, some of which can be co-financed by public programmes. The Climate Path study has also shown that although the necessary transformation measures make sense from an economic viewpoint, four-fifths of them are not profitable for the individual investor.

Investment plan for the Green Deal

One possible incentive is outlined in the European Green Deal Investment Plan (EGDIP), also known as the Sustainable Europe Investment Plan (SEIP). The envisaged investment plan will provide EU funding and create a framework that will facilitate and stimulate both public and private investment. The European Investment Bank will play a key role in this regard. But in the end, the costs will have to be carried mainly by industry. For industry to lead the way, additional measures such as an adapted state aid framework, an enhanced innovation policy and a securing of investments in new technologies are needed to ensure the global competitiveness of European industry in the transition to a climate-neutral economy.

Business leads the way

Several EU Member States as well as companies have already committed themselves to climate neutrality. How will they achieve this? With a mixture of various cost saving and efficiency measures on their own sites as well as with offsetting measures to reduce climate-damaging greenhouse gases. In offsetting, CO2 emissions from one polluter are offset by others - often at a different location - compensating these emissions through measures such as reforestation. One tonne of CO2-offset is equivalent to one tonne of CO2. One instrument is the purchase of CO2 certificates. This flexibility is necessary and reasonable in order to be cost-efficient and to tackle the global threat of global warming internationally and cooperatively.

International perspective remains a priority

The Green deal aside, climate protection must be considered from an international perspective. Today, greenhouse gas neutrality by 2050 in Europe is only conceivable with an international mechanism for financing and crediting international projects - based on Article 6 of the 2015 Paris Convention. The development of a corresponding regulatory framework by the end of 2020 should be an EU priority. It should set out the framework for implementation from 2020 onwards and specify how the climate targets are to be met in concrete terms. Among other things, it should define how states can measure progress towards achieving their climate targets in the future and how they should report on this to other states. It is likely that the cost difference between reductions achieved in the EU and elsewhere will narrow as other countries step up their efforts. Irrespective of this, the transformations sought about by the Green Deal can only be successfully managed in coordination with Europe’s main competitors.

A long-term climate strategy, which includes elements of flexibility over time and across sectors, makes it more cost-effective to achieve the goals. In addition, milestones must be set and regular monitoring carried out in order to correct possible undesirable developments. A key challenge in the next few years will be implementing the existing legal framework. At this point in time, a renewed discussion on the objectives is counterproductive, brings legal uncertainty and draws away attention from implementation processes.