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Development Policy

The 'green economy' as an engine for growth

The EU has some 19 million unemployed and the trend is pointing upwards. But, new jobs will only come once the economy picks up. Could a new 'green economy' help create those jobs and halt Europe's decline?

The political demands are clear: More renewable energies, more energy efficiency, lower CO2 emissions and more environmentally friendly technologies.

For years, European governments have had climate protection high on their agenda. It's a mammoth challenge, but also promises enormous potential for growth and investment.

But the 'green revolution' somehow doesn't seem to be getting off the ground; in part, probably because Europe just has too many crises to deal with at the moment and too many fires to put out, says Jörg Zeuner, chief economist of Germany's KfW bank. "There's a lack of demand and there is too much saving going on in Europe. We have problems with financing because the financial sector is in turmoil and we don't have enough planning security because many countries are restructuring their tax and regulatory systems."

Staying competitive

Siemens Crystal building London (photo: Siemens)

Built with green technology: Siemens' Crystal building in London

These are all bad conditions for grand investments, even though the technologies for more climate protection are mostly already there and simply waiting to be used and implemented, explains Kersten-Karl Barth, head of sustainability at Siemens. "The technology we need in order to reach our CO2 targets for 2030 are up to 70 percent already there, " she says, adding, however, that there was still a massive need for investment and research in order to remain competitive. "The so called 'Green Economy' is a race and we simply have to be among the winners here, otherwise we'll have a problem," Barth said.

Siemens has substantially expanded its 'green portfolio' since 2008. The areas of renewable energy, energy efficiency and environmental technologies now make up some 42 percent of the company's entire business spectrum. But, particularly in Europe, there is room for a lot more investment, Barth believes. A glance at the capital market shows that private investors are desperately looking for lucrative business models to invest in. "The money is there; it's just waiting to be invested," noted Barth.

Safe forward planning

One big stumbling block is the long-term security of those investments. "We are talking about sustainable investment, investments in infrastructure, in cities, trains, transport, investments in the energy sector and other industrial sectors. Those are sustainable, long-term investments where security has be guaranteed through a framework of regulations," Barth emphasizes.

Those regulations are still significantly lacking in Europe, says Barth. One example is European emissions trading. The prices have dropped so low that it's not profitable for companies to invest in environmentally friendly technology. Still, the EU parliament has voted against temporarily revoking CO2 certificates, hoping the price of those certificates could be boosted that way.

Financial incentives

First solar farm (photo: Ben Birchall/PA Wire)

Solar technology still depends on subsidies

Another key issue is subsidies. An investor, for instance, would have to be able to rely on information as to how much and for how long a government would continue subsidizing renewable energies, explains Matthias Zöllner of the European Investment bank EIB. Subsidies "have been partly cut in dramatic fashion, in cases in Spain even with retroactive effect and that has gotten a lot of projects into trouble."

The EIB supports a number of green economy projects. In light of the current crisis, it was very important, Zöllner pointed out, to also invest in an anti-cyclic fashion. After a boost in capital, the EIB will be able to grant loans of a total 60 billion euros ($79 billion) in the next three years. As the bank normally pays for one third of the projects it supports, it amounts to investments of around 180 billion euros.

More general reforms

"When you talk about the green economy, it is important that you really approach it long-term, in terms of research and innovation," says Zöllner. It is not enough to simply replace coal-fired power plants with windmills. "What's needed is a real transformation of the economy, which will have an impact on other sectors as well and lead to more investment across the board."

Political leaders need to set up the legal parameters and financial incentives in a way that creates opportunities for investment and a green economy, Zöllner urged. It was also important to deal with general stumbling blocks to investment, regardless of whether they are linked to environmental issues or not, he added. Simply investing in green economy projects will not settle problems, like labor market reform, aging infrastructure, or bureaucratic hurdles.

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