“As of now, there must be no more investment in fossil fuels.”
Prof. Dr. Claudia Kemfert is an energy economist and heads the Energy, Transportation, Environment Department at the German Institute for Economic Research (DIW Berlin).
Prof. Dr. Kemfert, how realistic is it that we will achieve the goals of the Paris Agreement?
Kemfert: Since the ruling of the Federal Constitutional Court on April 29, 2021, which obliges the state to protect the climate, I have been optimistic. Because the fact that governments are being forced by the courts to make changes shows: we can’t shirk the responsibility. I therefore believe that we can succeed in stopping climate change before the end of this decade.
How is that possible?
Kemfert: First, we need to speed up political action. Above all, I urge that investments should only be made in renewable energies and no longer in fossil fuels from now on – which is what the International Energy Agency is calling for. Only in this way will we be able to reduce emissions to zero by 2038. Reforestation and the preservation of forests are also crucial in order to ensure the sufficient absorption of CO₂. However, this is only a supportive measure.
How can emissions be reduced so quickly?
Kemfert: Right after the promotion of renewable energy sources, especially of solar and wind power, we need to concentrate on electrification in all sectors where this is possible, especially in the heating and transport sectors. Last but not least, it is important to save energy. This is often forgotten, but even the production of hydrogen requires five times as much green electricity as compared with its direct use. The precious green hydrogen should therefore only be used in areas where there is no immediate electrical alternative.
In China or Russia, for example, there is still no sign of a renunciation of fossil fuels. How should we deal with these countries?
Kemfert: Here, too, the responsibility clearly rests with the financial sector and banks since these institutions are in a position to stop financing new coal-fired power plants in China. This is why the EU taxonomy, which sets uniform standards for sustainability, is so important. Norway, the country with the most highly developed democracy in the world, could serve as a role model for the governments of these countries. Norway has always sold a lot of oil – and it has also been preparing its energy transition for decades. The government has achieved this by investing in a sovereign wealth fund to provide for the future. Therefore, the answer to your question also includes the necessity to strengthen democracy in order to effect change together. And China has committed itself to reducing emissions and is also fighting air pollution from coal-fired power plants.
What are the benefits of the Green Deal?
Kemfert: This concept establishes worldwide standards for zero-emission products. The introduction of punitive tariffs or import surcharges on products that are harmful to our climate is also currently being discussed. In the EU we import a great deal from China, for instance steel sold at a dumping price, which is very harmful to the environment and the climate. The climate impact should be directly reflected in higher prices. And ideally, calls for tenders should require compliance with appropriate environmental and climate criteria, instead of focusing solely on costs.
What can the financial sector contribute to climate protection?
Kemfert: In my view, there are two things. First, banks need to name and categorize climate risks from fossil fuels. This entails, for example, making “toxic” papers more transparent. Research has shown: financed emissions are a hundred times higher than operational emissions. In addition, institutions must invest in a zero-emissions economy – and only allocate funds to promising business models.
That’s a big responsibility ...
Kemfert: ... and a huge opportunity which includes avoiding high costs arising from bad investments and climate risks in the future and enabling investments in climate protection on a significant scale.
Prof. Dr. Kemfert spoke on this topic at our Great Women network meeting on June 11, 2021. Learn more here.