The cost of security

The EU’s efforts to shift to a low carbon economy and reduce its reliance on oil and gas will cost around €60 billion a year, European Commission President José Manuel Barroso said when he announced the Commission’s package of measures to tackle climate change on 23 January.

Barroso sought to play down the alarming numbers by saying it only meant €3 a week per person. Referring to the report on the economic impact of climate change by former World Bank chief economist Nicholas Stern, Barroso said that the cost of action is only around 1% of gross domestic product if countries act now but would rise to 5-20% if no action were taken.

The drive to boost the share of renewables to 20% by 2020 is expected to cost €13-18bn as new sources of energy such as wind, wave and photovoltaic (solar power) will require high levels of public support to get established to the point that they can make a sustainable contribution to energy supply. Barroso has tried to depict this as a business opportunity not just a cost, saying that the renewables market is already worth €20bn and provides 300,000 jobs. If the EU can assume technological leadership in this field, there are profits to be made in exporting state-of-the-art technology.

Global coal supplies are forecast to last up to three times longer than existing oil and gas reserves. With new clean combustion technologies and carbon capture and storage (CCS) this fuel source also offers opportunities. But developing reliable CCS techniques will also cost billions. A proposed pilot scheme involving 12 test plants would need around €9bn over the next four years with the cost of a widespread rollout of the technology needing several times that figure.

In terms of its fuel reserves, nuclear energy is the clear winner with reserves of uranium and similar potential fuels estimated to last for thousands of years in new fast breeder plants which can use recycled fuel rods. Nuclear power has a lower carbon dioxide emissions profile than hydrocarbon sources. But the cost of storing waste and decommissioning plants also runs into several billions of euros.

EU member states will retain control over their energy mix choices although they have targets for renewables and biofuels use. The costs of the switch to low carbon and away from fossil fuels are unavoidable. The public policy debate will be on the most economically effective way to use public funds to deliver the environmental goals.