ZEW Economist Martin Kesternich on the European Climate Law

Today, the European Commission presented the European Climate Law in Brussels. Martin Kesternich, deputy head of the ZEW Research Department “Environmental and Resource Economics, Environmental Management” at ZEW Mannheim and professor of economics at the University of Kassel, shares his views on the goals and measures of the proposed law. 

“It is a good thing that the European Commission is setting a binding framework for its 2050 long-term strategy with the European Climate Law. In its proposal, the Commission does not only commit to the climate neutrality goal, but goes one step further by demanding that, for the period after 2050, the amount of greenhouse gases removed from the atmosphere should exceed total greenhouse gas emissions.

The EU Commission further reserves the right to set interim targets every five years from 2030 and to evaluate the progress made by the Member States. This component is similar to the so-called “ratcheting” mechanism included in the Paris Agreement. This dynamic system of incentives requires signatory states to provide insight into their national climate protection contributions on a regular basis, and to step up these efforts over time. However, studies conducted at ZEW Mannheim found this mechanism to be potentially counterproductive. This is especially the case when cooperative actors who initially set ambitious climate goals downsize their ambitions significantly to prevent other states from benefiting from these measures without undertaking their own initiatives. From an economic point of view, the EU Commission would do well to address such free-rider behaviour.

The fact that the EU Commission did not define detailed provisions on how these common climate should be reached is to be welcomed. In the medium term, the Commission would be well advised to put a particular focus on consolidating the currently co-existing CO2 pricing schemes at European level. With the EU emissions trading scheme regulating the industrial and energy production sectors, and the effort-sharing regulation applying to the transportation, buildings, heating and agricultural sectors, this is unfortunately not yet the case. Consolidating these systems would create a single price signal at European level. It is crucial that we start thinking today about the future need to integrate national measures into a common European system.”