Environment-Economy Nexus: What Rules Rulers?
28 April 2019 /
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Most political players recognise the need to act in environmental and climate matters. How? This is where some cleavages and divisions appear. The question of the involvement of economic players is a particularly key subject of debate.
Regarding the EU’s objective aiming to cut its greenhouse gas emissions by 40% compared to 1990, to share at least 32% renewable energy and to improve its energy efficiency by 32.5% by 2030 [1], the future legislature will undoubtedly have to deal with environmental and climate issues. It will, in particular, have to reflect on how to involve the economy and its stakeholders in the response to these challenges. The ideas that are now part of the candidates’ speeches and that could be included into the parliamentary work actually find their inspiration and origin in clearly identified schools of thought, deserving to be better known.
To understand them, in their essence and impact, it is necessary: to know (1) the environmental and ecological economics theories and related debates; (2) the used and to be used tools in response to the environmental and climate challenges; (3) the political proposals of some parties involved in the elections for the 2019-2024 legislature; and, (4) the political alternatives for electors and European citizens.
Inspiration origins: theories and approaches
Environmental and ecological economics are two very important schools of thought, providing two radically different conceptions of the necessary responses to environmental and climate challenges.
- Inspired by neoclassical economic theory, environmental economics covers the idea that it is necessary to give a value to the nature to save it. Its responses to environmental and climate challenges are rather market-based. In this perspective, the market mechanisms have the means to, through suitable tools, adequately address the faced challenges. It is today the most favoured approach by European political decision-makers, who want to believe in a possible fair articulation between the current market needs and environmental imperatives.
- Inspired by an original interdisciplinarity, ecological economics covers the idea that the economy can only be an activity embedded in, and therefore limited by, its environment. Its responses to environmental and climate challenges are mainly regulatory-based. In this perspective, economy is part of the environment and regulation ensures the sustainable use of resources. It is now disregarded by European political decision-makers, perceiving the proposals it inspires as somehow disconnected from economic realities and needs.
Market-based solutions time
While there already exist several market-based solutions, there are several others still in the making.
Existing market solutions
Carbon markets, biodiversity offsetting systems and water quality trading are some market-based responses to environmental concerns that are partly being implemented at the European level.
- Carbon markets enable the trading of greenhouse gas emission allowances.
- Biodiversity offsets are used to counterbalance damages caused to ecosystems.
- Water quality trading would make it possible to exchange water pollution allowances.
Many of them raise philosophical questions about the monetary valuation of nature, i. e. about the natural capital concept. Others, such as carbon markets, face dysfunctions or conceptual flaws, such as permit excesses or their low prices, seriously jeopardizing their effectiveness [2].
Upcoming financial solutions
On 28 March 2019, the European Parliament voted on the proposal for a regulation on establishing a framework to promote sustainable investments [3]. This regulation is supposed to provide a classification or taxonomy compiling green investments. Just adopted and studded with delegated acts on which a Technical Expert Group on Sustainable Finance (TEG) is providing input, the content of this regulation is done to give some work to the 2019-2024 parliamentary legislature.
Leading parties, leading thoughts
Sometimes touchy, often technical: questions relating to the relationship between economy and environment, or environment and finance, are not very much discussed in front of the general public. Nevertheless, some parties give voice to views that deserve to be known, as they illustrate the very relative diversity of opinion on these issues in the European political landscape.
Political players’ positions
Regarding environmental issues, the European Parliament will most likely split up into two camps: supporters of economic incentives and supporters of regulatory measures.
The policy paper issued at the Helsinki conference of the European People’s Party in November 2018 states that “[an] effective carbon price combined with adequate carbon leakage protection will be crucial […] to offer the right balance and incentives to invest in low carbon solutions […]”; adding: “it will be the market and the consumers that will determine the successful approach” [4].
Such an approach is based on carbon market mechanisms and the assumed effectiveness of the economic player logic in ecological matters.
Bas Eickhout, Spitzenkandidat of the European Greens and co-rapporteur on the green investments’ classification text, advocates the adoption of a brown investment list alongside the green investment taxonomy.
Such a list could contribute to the avoidance of fossil fuel and other eco-unfriendly investments.
Indulged financial players
The approaches of these two parties, reflect part of the main political approaches in responding to environmental and climate challenges. However, it appears that no strong opposition to the idea, often raised by representatives of financial interests, of giving tax and/or prudential advantages to investors investing in assets classified as green has really been expressed or heard. This circumstance could be a dangerous step backward in the European objective to get banking and financial sectors sounder. Given the risks of greenwashing, one would find several questions to which 2019-2024 parliamentarians will have to answer.
Towards alternatives?
Climate marches or the Climate-Finance Pact initiative demonstrate a growing civil demand for adequate responses to environmental and climate issues. Through this pressure it is the ineffectiveness of the methods and tools currently used and, widerly, the dominant approach that are questioned. While the parliament keeps its full power to push for more appropriate solutions to meet the environmental and climate challenges, civil society could also play an increasingly influential role in these issues. In addition, while social aspects are sometimes neglected in addressing these issues, it must be said that an environmental disaster would impact a whole society. Such an event would remind us that economy remains, every time and everywhere, a human activity embedded in its social and primary environment.
Mehdi Sénamaud-Bellamdaouar is a second-year Master’s student at the Institute for European Studies
Sources
[1] European Commission, “2030 climate & energy framework”
[2] Green Finance Observatory “50 shades of green: the rise of natural capital markets and sustainable finance – Part I Carbon”
European Parliament, “Report on the proposal for a regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment”
[4] European People Party, Policy Paper 3: A Sustainable Europe