A New Growth Path for Europe. Generating Prosperity and Jobs in the Low-Carbon Economy

Funder: German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU)
Lead institution: Global Climate Forum (then European Climate Forum e.V.), Potsdam
Period: 2010–2011 · Synthesis report published Potsdam, 2011 · ISBN 978-3-941663-09-1
Partners: Potsdam Institute for Climate Impact Research (PIK) · Smith School of Enterprise and the Environment, University of Oxford · E3M-Lab, National Technical University of Athens · Université Paris 1 Panthéon-Sorbonne (CES)

Authors: Carlo C. Jaeger, Leonidas Paroussos, Diana Mangalagiu, Roland Kupers, Antoine Mandel, Joan David TàbaraWith: Nicola Botta, Steffen Fürst, Elke Henning, Cezar Ionescu, Wiebke Lass, Daniel Lincke, Frank Meißner, Heike Prietzel, Carolin Rosenkranz, Sarah Wolf

The Question

Can Europe grow, cut emissions and reduce unemployment at the same time? Post-crisis, decision-makers, investors and the public had begun to expect high unemployment and widening regional disparities — a dangerous development, because such expectations can turn into self-fulfilling prophecies. The project asked whether raising the EU target from 20% to 30% emissions reduction could break that cycle.

The Innovation

Pre-crisis models assumed a single stable equilibrium, so that cutting emissions necessarily means extra costs today — win-win strategies are excluded by construction. For the first time in the academic climate modelling field, this study took a state-of-the-art climate-economics model (GEM-E3, used by the EU itself) and rebuilt it to include subjective investor expectations, investment-driven learning-by-doing, and multiple possible equilibria. Only learning rates valid for well-established technologies were assumed — results may well be too conservative, which the authors considered a virtue.

Key Results (EU27 by 2020, 30% vs. 20% target)

• Growth rate +0.6% per year
• Up to 6 million additional jobs; unemployment 5.3% instead of 7.6%
• Investment from 18% to 22% of GDP
• GDP +$2004 842 bn, up to +6% in both EU15 and EU12
• Benefits available independently of any international post-2012 agreement
• All sectors gain, with the largest increase in construction — and the path is remarkably balanced: a tide that lifts all boats

The Mechanism: A Virtuous Circle

A credible, ambitious target triggers additional investment → investment induces learning-by-doing → learning-by-doing raises competitiveness and growth → improved expectations sustain further investment. If the EU stabilises these expectations through consistent policy, the economy settles on a superior growth path.

Policy Levers Identified

Macro: ETS and structural-fund revenues for mitigation in Eastern Europe · tax relief for entrepreneurial investment · low-carbon expectations built into public procurement · managing growth expectations the way central banks manage inflation expectations.
Micro: stronger building and transport efficiency standards · ETS revenues for efficiency and renewables · standardised smart grids and appliances · European learning networks of innovative businesses.

Why It Still Matters

The problem was never a lack of measures — there is a bewildering multitude of climate policies in place — but the lack of an overarching thrust. And credibility is not only a matter of announcing targets but of implementing them: central banks learned over decades that only consistent pursuit through a long series of decisions builds credibility. Both insights remain directly relevant to today's debates on investment gaps and long-term climate targets.

The study made no claim of closure: enriching models along these lines is a major research programme that will keep many researchers busy for many years. It stands as evidence of what a focused commission can achieve when it combines a strong consortium, a genuine methodological advance and a sharp political question.

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