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February 19, 2020

Degrowth isn't enough to stem climate change

Whether or not carbon-neutrality by 2050 is sufficient to prevent catastrophic climate change, the idea constitutes the current consensus about what is technically and politically feasible. But as Martin Wolf argues in his latest FT column, the economic system will not achieve this transition left to itself. It will require regulation, incentives and government funding for research and development.

One important observation Wolf makes is that global impoverishment will not solve the problem of decarbonisation. Emissions per unit output have been declining in the period of 1990-2018 at about 2% per year. But, even with stagnant global GDP, emissions would only fall to 60% of their current level by 2050. Low-carbon technologies are more advanced, not less. We would add that the eurozone itself is the best example that de-growth does not improve the environment. As austerity hit Greece and GDP dropped by 25% between 2007 and 2014, air quality worsened. People reverted to burning scrap wood for heating rather than pay for gas or electricity. The answer to the climate crisis is not squalor, but investment and therefore continued GDP growth.  

The radical transformation of the world's energy system will also require global cooperation as two thirds of carbon emissions come from developing or emerging economies. Some major developed countries, such as the US under Donald Trump are not on board with the 2050 target. We at Eurointelligence also have our misgivings about the European commitment, notably Germany's attachment to the carbon economy and the way the fiscal targets frustrate investment. 

In any case, climate transition investment is not taking place at the necessary pace. One can see this by taking the growth of the green bond market as a gauge of actually occurring real investment in climate adaptation. The latest data from the climate bonds initiative is that, despite strong growth in 2019 after stagnation in 2018, global green bond issuance was $250bn. This should be compared with estimates of €2tn a year for the additional investment that would be necessary to meet the Paris climate targets. The EU is doing better but still not enough. Green bond issuance was just over €100bn in 2019, compared with investment needs that the European Commission estimates at between €180bn and €300bn a year.   

source: Climate Bonds Initiative

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February 19, 2020

Is Renzi finished?

Important shifts are taking place in Italian politics. The government's disarray is reflected in the opinion polls. There is shift away from the government, and within the government: away from Five Star and from Matteo Renzi towards the PD. Here is the latest Ipsos poll for Corriere:. 

 

Feb 2020 Dec 2019
PD 20.3 18.2
Five Star14 17.7
Italia Viva 4.3 5.3
Lega 32 31.5
Fratelli d'Italia12 10.3
Forza Italia  6.5 7.4

Source: Ipsos/Corriere della Sera

The combined vote of the government is 39% including Matteo Renzi's Italia Viva, or 35% excluding Renzi. The combined vote of the right is just over 50%. The gap is getting bigger, but so is the shift between the two governing parties. Also note the steady rise of the the far-right Fratelli d'Italia. At 12% they are now almost as big as Five Star.

It is also noteworthy that Renzi's gamble of setting up his own party is not working. If the German-style electoral system were adopted, as planned, Italia Viva would fail to clear the 5% hurdle. Renzi's only hope would be to combine with the waning forces of Forza Italia, which barely clears the 5% hurdle, to form a new centre/centre-right party. This would then align with Matteo Salvini and Georgina Meloni, the Fratelli leader. Salvini and Meloni are still a long way from a majority between themselves. They will need a centrist partner.

So what is Renzi's game plan?

Antonio Polito offers some interesting thoughts on the two Matteos. Their method and their discourse have many similarities. The big difference is that a third of the electorate is supporting Salvini, and only a tiny fraction is behind Renzi. Renzi polls even less than the various technocrats of the past, like Mario Monti. His only hope is to pick up moderates from the centre, and establish a small but potentially pivotal centrist party, or to merge his lot outright with Forza Italia. We should not underestimate this option. 

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February 19, 2020

Welcome to Germany, Tesla

Playing one environmental concern against another is emerging as a new political reality. A local environmental group got the courts to issue a temporary stop to the clearance of trees to make space for Tesla's giga-factory in Berlin Brandenburg. If the delay goes on, Tesla may have to change its schedule or could even have to reconsider the whole operation. The fate of the new airport at Berlin Schönefeld comes to mind. It is about to open this autumn, a decade later than planned.

Local activists objected to the authorities' decision to allow Tesla to chop down trees for the plant without an environmental permit. The court could rule in favour of Tesla in the end. But the temporary halt could delay works if it extended into the breeding season which starts next month. Tesla would be forced to stop all works until October, impacting the planned opening of the site in February next year, writes the FT. At local town hall meetings, residents have expressed reservations about the plant being built in a water conservation zone bordering a nature reserve, about the forest clearance and over the impact of heavy industrial traffic on local infrastructure. Elon Musk defended his plans saying these trees were not a natural forest but planted for cardboard use, ensuring that sustainability and the environment are part of their considerations. 

The local protests are also not backed up at the federal level, on the contrary. Economics minister Peter Altmeier expressed concern for Germany's reputation among international investors, and called for clearance so that Tesla's plant can be completed swiftly. The president of the BDI, the German federation of industry, warned that procedures for gaining permissions have turned into obstacles for investment. Even senior members of the Green party criticised the court's decision to turn a commercial pinewood plantation which has nothing to do with conservation into a battleground. 

The final construction permit has not yet been issued. According to Brandenburg's environment ministry, complaints against the factory can still be filed until March 5. After that, the final permit will be reviewed. The state of Brandenburg sold Tesla the 300-hectare site in Grünheide for almost €41m. A search for any waste deposits or explosive artillery from the second World War is planned for next month, and the German government promised to relocate protected animals from the forest. The local court still halted the tree clearance, arguing it would have taken only three days to complete it. The court wants enough time to consider the appeal by the local activist group. Welcome to Germany, Tesla!

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