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  6. “Climate policy without CO₂ pricing is like medicine without penicillin”

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“Climate policy without CO₂ pricing is like medicine without penicillin”

Interview with Prof. Ottmar Edenhofer, Director of the Potsdam Institute for Climate Impact Research

Prof. Ottmar Edenhofer is Director of the Potsdam Institute for Climate Impact Research and is one of the world's most renowned climate economists. He is working on a model for the pricing of CO₂ for the German government which should be available in the summer. In an interview he talks about the path to effective climate protection.

The Fridays for Future protests bring global attention to climate protection. What do you think of this?

The significance of these demonstrations is enormous. Even at the UN Climate Change Conference in Katowice, Poland, a few months ago, many politicians feared a yellow vest movement like the one in France, and were suitably cautious with climate protection commitments. In the meantime, students have substantially changed the debate. Those whose future is at stake are now taking to the streets. At the same time, everyone remembers the dry summer of 2018, which caused the world wheat harvest to shrink; the concern about increasing weather extremes is growing. In Germany, we are now experiencing a lively discussion on CO₂ pricing as a means of climate stabilization.

How urgent is it that we act on climate protection?

It is very urgent. To limit the risks of climate change, we must achieve CO₂ neutrality worldwide by 2050. This can only succeed if we decarbonize the global electricity sector by 2030 and at the same time electrify traffic and heat generation. It is often ignored that within the EU, member states reached a binding agreement to cut CO₂ emissions by 38 per cent, even beyond the electricity sector to include transport, heat and agriculture, by the year 2030. Yearly budgets apply to each member state. Those that don’t manage the reduction have to buy emission rights from other countries, which can cost billions. And, specifically, Germany too. So, if our cars continue to emit too many greenhouse gases, that will be expensive for taxpayers. This is another reason why the combustion engine has no future in the long term.

By what means can the goals best be achieved?

There is no way around fair pricing for climate-damaging emissions. A climate policy without CO₂ pricing is like medicine without penicillin. In the long term, we need a consistent price signal in all sectors, whether it be transport, agriculture, or heat generation. Only then will emissions be reduced where it is most efficient. This can be done either through a tax or through certificate trading, but a social balance is always necessary. It would be good if even big companies like Volkswagen would make a public commitment to a carbon price. The price offers the economy exactly the predictability and reliability it needs to invest in clean technologies. And Volkswagen could take responsibility for the future and perhaps also regain some of the public trust that was lost through the diesel scandal.

“The state should return the income from the CO₂ pricing to its citizens, for example, by reducing tax on electricity,” says Ottmar Edenhofer

What exactly happens if there’s no price on CO₂?

A good example is the fossil fuel phase-out in Germany. That's right, but we have to secure it with a minimum price for CO₂ in Europe. If we don’t do that, there will be an incentive in some neighboring countries to increase the generation of electricity from lignite and hard coal, because the operation of power plants will become more profitable. Nothing would then be gained for our climate and weather extremes would continue to increase. With the CO₂ price, we pay for climate stabilization and without the CO₂ price, we pay for climate damage. We have the choice.

How can social inequalities be avoided?

The state should return the income from the CO₂ pricing to its citizens, for example, by reducing tax on electricity. And I call for relieving every citizen by the same amount. This would benefit low-income households in particular. A climate policy that is socially unjust would be doomed to failure. However, unlimited climate change would certainly be unjust, because rising prices caused by climate damage, for example for food or insurance, would of course hit poorer people in particular.

The Volkswagen Sustainability Advisory Board supports a research project on the climate-friendly regulation of transport. What is this about?

The transport sector is facing a major change. For example, we are researching how to solve city traffic problems and the conditions under which electromobility is achieved. Specifically, we examine among other things the behavior of motorists in Berlin. We want to find out how sensitive they are to changes in fuel prices. The first impression: The prices seem to influence driving behavior more than many scientists would have expected. This is an indication of the effectiveness of CO₂ pricing.

There are still skeptics who don’t believe in human responsibility for climate change ...

The Intergovernmental Panel on Climate Change has collected evidence on this issue for almost 20 years. Today, it is one of the most scientifically proven findings that humans bear a critical responsibility for increasing global mean temperature and climate change through the burning of oil and gas and the cutting down of forests. In the meantime, the consequences of this temperature increase are becoming increasingly evident in our data.

Skeptics say that temperature fluctuations have always existed.

But not at this pace and to this extent. The speed of change is unique in human history. Even today, the average temperature on earth has increased by more than one degree compared to pre-industrial times. In order to limit the risks of climate change, we must not exceed the two-degree mark. At present, we are heading towards four degrees by the end of the century. This poses great dangers: increasing weather extremes, destruction of coral reefs, changes in monsoon dynamics in China and India, dehydration of the Amazon rainforest, thawing of permafrost soils and rising sea levels. If we have to spend more money on coastal protection, this leads to a shortage elsewhere. Risks to crop yields increase. Industrial supply chains are disturbed. In areas of tension, smoldering conflicts can flare up and drive more people to migration.

Ottmar Edenhofer about his motivation: “If we can really work together to stabilize our climate, it will secure the life chances of many millions of people.”

Despite these dangers, international climate policy is making little progress. What can Europe do?

The EU has considerable weight in global climate negotiations. Europe must use this influence to reach international agreements. It's not like we would be isolated inside the G20. Even in the USA, there are states like California which, taken in isolation, is the fifth largest economy in the world! They rely on ambitious regulation and do a lot for effective climate protection. There is also a debate in the USA about the introduction of a CO₂ tax. Let's assume for a moment that the EU would agree on international emissions trading with China and California in the next decade – that would be very significant.

What drives you personally to support climate research and climate protection?

Climate research is one of the most comprehensive and exciting fields of activity that I can imagine. You have to understand the entire earth system – the climate system, the carbon cycle and plate tectonics. That already fills up a whole researcher’s career. Then you come to questions of the economy, the social and legal philosophy, which would fill up another researcher's career. For me, as an economist, it is particularly interesting how we as humans deal with global common resources such as the ocean, the atmosphere and the land. I am convinced: In the 21st century, prosperity will only be possible if we find good rules for the use of these common resources.

Despite all the threats, the progress so far remains limited. Doesn’t that frustrate you?

No. Since I've dealt with the subject, I have heard doubts about whether humanity can solve such a big problem. Only a few years ago politicians said to me: Voters will never accept a price for climate-damaging CO₂. Today, many young people take to the streets for exactly this goal, and one of the five demands of the German Fridays-for-Future movement is actually a carbon price. And the leaders of the major parties are discussing it. It can be seen that good arguments can eventually find public support. And if we can really work together to stabilize our climate, it will secure the life chances of many millions of people. That's enough motivation for me.

  • Prof. Ottmar Edenhofer

    • Ottmar Edenhofer is Professor of the Economics of Climate Change at the Technical University Berlin, Director of the Potsdam Institute for Climate Impact Research (PIC) and Director of the Mercator Research Institute on Global Commons and Climate Change (MCC).
    • As one of the three chairmen of Working Group III of the Intergovernmental Panel on Climate Change (IPCC) from 2008 to 2015, Edenhofer was jointly responsible for the publication of the “Fifth Assessment Report – Mitigation of Climate Change” in 2014.
    • As a member of the independent Sustainability Advisory Board, Edenhofer has been advising Volkswagen on sustainable mobility and environmental protection since 2016.
    • On behalf of the Federal Chancellery, Edenhofer, together with Prof. Christoph M. Schmidt, Chairman of the Expert Council for Assessment of Overall Economic Development, is working on a model for CO2 pricing, which will be available in the summer.