Now is the time to climate-proof Europe’s economy

Climate change is accelerating. Our time to limit global warming to 1.5°C is running out. We can either play our part within our mandates or suffer the dire consequences of our inaction.

As policymakers, business leaders and civil society prepare for climate negotiations at COP28 in Dubai next week, 2023 looks certain to be the hottest year on record. Extreme wildfires, droughts and floods are taking a heavy human and economic toll across the world. The evidence is clear: Analysis from the European Central Bank shows that the longer we wait to reduce our emissions and transition to a greener economy, the higher the cost. And the European Investment Bank’s 2023 Investment Survey shows that two out of three European firms are already facing damages and losses due to climate change.

At the same time, the way we fuel our economies is changing and the energy transition is moving fast. A combination of policies, innovation, carbon pricing, and private and fiscal funding – including through the European Green Deal – is accelerating investment in technologies that will help mitigate the degradation caused by the unabated burning of fossil fuels and global warming.

Global spending on clean energy is breaking records, as the International Energy Agency’s World Energy Outlook shows. This shift to cleaner energy is not solely motivated by goodwill: It also makes economic sense. It is now cheaper and faster to deploy renewables rather than build new infrastructure for fossil fuels. In a world of heightened geopolitical uncertainty, clean energy technologies help boost countries’ energy security and independence.

The green transition is not only important for protecting our environment, but also for protecting our economy. It does not make economic sense to invest in energy sources that are becoming increasingly uncompetitive, and miss out on technological breakthroughs that will shape the energy mix of the future. If Europe fails to join the global energy revolution, its competitiveness will be irreparably harmed.

Europe needs to be clear-sighted, ambitious and determined if we are to avoid this outcome. It has to create a stable and favorable regulatory environment with well-defined strategic objectives, in which private capital is firmly directed towards green technologies. A global level playing field is also needed to allow innovation to thrive.

Financing instruments such as EU-issued green bonds will help fund breakthroughs in clean technologies, and would be even more powerful in a fully completed capital markets union. Tailored financing solutions or guarantees to alleviate the risk attached to highly innovative private investments − like floating windfarms, green hydrogen or new battery technologies − will help roll out the infrastructure Europe needs to achieve net zero. And at the global level, carbon pricing would provide transparency to encourage consumers and investors to move towards sustainable and energy-efficient products and assets.

But Europe going it alone will not be enough: Unless others act as well, we will all fail. Initiatives such as the European Green Deal should be coupled with ambitious development policies that support developing regions beyond Europe in adopting clean energy sources. Investments in cutting-edge European technologies can, and will, make a difference.

In working to transform our economy, we must ensure we take everyone along. Europe must strive for a just, inclusive and equitable transition. Climate change and transition policies may hit the most vulnerable businesses and households hardest. We need well-targeted temporary fiscal measures and retraining initiatives to spread the burden of the transition fairly.

In the face of economic challenges, climate policies are too often seen as a scapegoat. But the consequences of inaction would be far worse. The answer does not lie in diluting our ambition but rather in unleashing the full potential of our innovators, making Europe’s economy more competitive and resilient and securing a fairer and more sustainable future for everyone.

COP28 is a chance for the EU and countries around the world to show that they are committed to leading the fight against climate change and to back up that resolve with concrete action. Within our mandates, we will participate in that collective endeavor.

Fatih Birol is executive director of the International Energy Agency, Werner Hoyer is president of the European Investment Bank, and Christine Lagarde is president of the European Central Bank.