The EU Should Consider the Economic Impact of Climate Action

The ifo Institute, EconPol Europe, and the European Roundtable on Climate Change and Sustainable Transition (ERCST) have urged the future European Commission to consider climate action also as a matter of economic, industrial, and competition policy. “This is due to the cost implications of CO2 restrictions as well as the economic opportunities created by emerging industries,” they wrote in a report published in Brussels on Friday. “The EU’s economic analysis must comprehensively consider both the negative and positive effects of climate policy, including the impact on people’s consumption opportunities, on industrial competitiveness, and on supply chains,” says ifo President Clemens Fuest. The next Commission must ensure Europe’s competitiveness and the resilience of its economy.

So far, the Commission has primarily relied on market-based instruments, particularly carbon pricing. “However, given the scale and cost of decarbonization, the EU is showing signs of backing away from this commitment, turning instead to more costly technology-specific subsidies and other dirigiste market interventions,” the authors continue. More than ever, the efficiency of the markets and technology neutrality must be protected from political interference. Government intervention in the economy should be limited to areas where it is absolutely necessary. Public sector involvement and regulation should not be the first response, as there is a growing sense of over-regulation and regulatory fatigue.

At the same time, the authors demand more international collaboration from the new European Commission and similar efforts from other countries. This is a necessary prerequisite for EU climate policy to be sustainable and for the EU to flourish economically.

Questions can be directed to: Prof. Clemens Fuest, 0049 89 9224 1257, Fuest@ifo.de