Why Europe leads on climate change

Reducing and mitigating the negative effects of climate change is first and foremost a technological problem. Yes, we all need to change our behaviour but in the end, these behavioural changes themselves are made easier if we have convenient technology to support them. Until a few years ago, the range of battery electric cars was so low and their price so high that no one except the biggest ecomentalists would spend the money to buy one. Today, the cost of electric cars is almost at par with internal combustion engine cars and their range has greatly expanded. As a result, people like me are going electric.

When it comes to electric cars, the revolution was driven by a US entrepreneur and Europe and China had to catch up. But in general, it is astonishing how little of the innovation in green technology is developed in the United States. When it comes to global leadership on greenhouse gas emissions reduction it is not the innovative United States or rising China, but sleepy old Europe that is leading the charge.

In my view, this is not a historical accident but a result of cultural and institutional differences that makes European countries much more likely to fight climate change. 

The first observation I want to make is the institutional difference between how the economies in Europe, China, and the United States are run. The US is the land of the belief in free markets. Regulation is as light as possible and to be avoided at all costs. When it comes to green technology, this is a serious drawback. Green technology is expensive to develop, capital intensive, and takes a very long time to become cost-competitive with traditional technologies. It simply is not possible like in the software space to develop a new product and then roll it out aggressively to capture a large market share in a few years and then become profitable. Unless you have a backer with nearly limitless resources and an iron will to see this project through, a free-market economy will kill off this kind of innovation long before it can become competitive. 

China with its guided capitalism would theoretically be a natural habitat for technological revolutions because the government could finance and protect emerging new technologies for long enough to make them competitive. However, over the last couple of decades, the Chinese government was mostly interested in improving the living standards of the Chinese as rapidly as possible. This meant focusing less on innovation and more on copying technologies from the West and reproducing them at a lower cost. It is what has turned South Korea and Japan into global industrial powerhouses. Now that China is at the crossroads where it has to escape the middle-income trap, the country focuses intensively on becoming a global leader on 21st century technologies like batteries and other green technologies. In my book on geo-economics, I have written in detail how China tries to do this and what that means for the coming decade. So, for the last two decades, China was out of the picture as well.

This leaves us with Europe and its focus on social market economy where regulations play a bigger role to avoid market failures. In Europe, it is common to introduce subsidies for new technologies or to foster market changes. Thus, subsidizing wind and solar energy until it became competitive was nothing new to European policymakers. And if it created jobs, politicians were quick to jump on board. IRENA reports that the total number of jobs in solar wind and biomass in 2019 was 9.5 million, up from 5.6 million in 2012. In the EU 1.25 million jobs depended on these technologies in 2019, almost twice as many as in the United States.

The second key reason for European leadership was cultural. The United States is the land of “move fast and break things”. It is the place where entrepreneurs can develop a new technology or a new product without much red tape, put it out in the market and see what happens. If it kills a few people or makes infringes on their privacy rights, so be it. The worst that can happen is you get sued, but most of the time, that doesn’t happen, or nobody can prove that it was your fault. This is why the United States is the land of Facebook and Google, of low food quality standards and fracking. Meanwhile, most European countries act based on the cautionary principle. First, you have to prove that your product does no harm, then you can roll it out. This “do no harm” principle is so ingrained in Europe that it is for example one of the three key principles for the new EU taxonomy on sustainable economic activities. If you run a business and you want it to be accredited as a sustainable business, you have to show that it does no harm to the environment and the climate. 

This cautionary principle in Europe means that there is a much higher incentive to develop new technologies that solve existing or future problems. I tend to say that America has never met a problem that it couldn’t solve by throwing more money at it or using more energy. And in my view, most of what Silicon Valley does is solve problems for young white men with disposable income. Silicon Valley doesn’t solve hunger, fight malaria (or Covid, for that matter) or inequality because the people who work there aren’t hungry, have health insurance and money. 

In a free-market economy, developing green technology puts you at a first-mover disadvantage. Much better to wait until someone else has made the investment and developed the technology until it is ready for primetime. But if everybody thinks that way, nobody ever tackles that problem. Unless you have a couple of stupid Europeans who care about more than just making money.