Climate investment: working with our differences

8 June 2023 - Blog post - Op-ed - By : Hadrien HAINAUT

How much should France invest in climate action ? Experts from diverse backgrounds have sought to answer this important and seemingly simple question. They agree that France needs to invest more to reduce its greenhouse gas emissions. But they differ on the scale of public and private funding needs, which range from €20 to €100 billion a year. Is this a cause for concern? Not really, because the experts are not counting the same thing. These differences can be explained and should not be used as an excuse for inaction.


It is an important question because it fuels two debates. Firstly, what level of public spending will be required? We can answer this question by acknowledging that the State and local authorities will need to cover a proportion of the investments needs, whether through expenditure on buildings and public infrastructure, or support to encourage households and businesses to make their own investments. The second debate is macroeconomic, in the sense that if more investment is needed, this will mean producing more, saving more by consuming less, or resorting to foreign capital, all of which could affect growth, employment or prices.


Every year for almost a decade, the Institute for Climate Economics has produced an overview of climate investment trends in France, as well as estimates of investment needs. To implement the government’s National Low-Carbon Strategy, we estimate that France will need to dedicate an additional €22 billion to climate investments. Other experts put the figure at €30, €50 or €100 billion a year. A recent Prime Minister’s report submitted by Jean Pisani-Ferry and Selma Mahfouz puts the annual requirement at over €66 billion. Should we be concerned by these discrepancies? No, because the differences can be explained. 


One might assume that the distinguishing factors underlying these figures are the preferences of some experts for nuclear power, of others for renewables. Likewise, they could disagree on the scale of building retrofitting works, or on the pace of electric vehicles deployment. But all these figures are largely based on the same objectives, those of France’s National Climate and Energy Plan (NECP), published in 2020 – and currently under review. 


So what is the real difference between these estimates? The first is the reference level used to measure “additional” climate investments. Our estimate compares to the most recent known level, i.e. 2021. We believe that this is the relevant approach on budgetary issues, as each new budget is drawn up on the basis of recent expenditure. Other estimates are based on more hypothetical future levels. For example, a future where all climate policies that have already been adopted are implemented, or a future where France does not bother to reduce its emissions. Reasoning in this way, “everything else being equal”, is better suited to the macroeconomic debate. However, the choice of baseline is not insignificant: the lower the baseline, the greater the need for additional climate investments!


Another important distinction is the scope of the sectors considered. While our estimate is limited to buildings, transport and energy production, others include agriculture and industry, sectors where there is clearly a need for investment, but these needs are difficult to measure. Conversely, we address the construction sector, where the national strategy aims not to increase, but rather to reduce investment, to save materials and to bring a halt to land artificialization. Estimates may differ for other reasons too, such as the time horizon considered – 2030 or 2050, or the costs of new technologies such as batteries or renewables. 


The differences between estimates are not as concerning as they might appear. What is important is to understand the reasons underlying these differences. And to adopt the appropriate perspective for each debate. Above all, these differences should not be a reason to delay climate action. Public authorities can already forge ahead in areas where consensus is emerging, such as housing renovation or the deployment of electric vehicles. In France, the 2024 Finance Bill represents a first opportunity for the government to spend more and better on climate action. Other differences call on policymakers to clarify their intentions and to announce more concrete measures that will increase the credibility of transition pathways. As for the experts, they must continue to identify, explain and reduce their differences.


The French government is currently revising its national strategy to incorporate the objective of the EU’s “Green Deal”: to reduce greenhouse gas emissions by 55% between 1990 and 2030. Let us hope that this will provide an opportunity to update and elucidate our collective forecasts for climate investment needs. 

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