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On 24 June 2015, the Dutch District Court in The Hague ruled that the government must put policies in place to deliver, by 2020, cuts in the country's greenhouse gas emissions of at least 25%, relative to 1990 levels.

The government, for months leading up to the tribunal appearances, had been saying that it was hard for them to cut it down by any more than 17%.

What are the likely economic consequences of this ruling?

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global

The Dutch energy system is small enough that the ripples to the global supply chain will be very small. However, it is looking possible that there might be some temporary tightness in the global PV module supply chain coming up, after years of capacity expanding faster than demand, so there might be a price-spike up, there, if the Dutch go for rapid PV deployment 2015-6. Conversely, there is a bit of a dip coming in the global offshore wind pipeline, so the Dutch might help there; they do have a deployment pipeline set out to 2023, so one approach would be to accelerate that to deliver all of those windfarms by 2020, smoothing the work of the global supply chain, and reducing wastage there. But the Dutch energy system is small, and so all of these consequences would be small at the global scale.

The much larger potential impact is that of the ruling itself, on other countries. This successful application of tort in one country may well prompt similar cases in other countries, as tort is a principle found in legal codes around the world. Further successful tort cases might help push the world along the decarbonisation trajectory much faster than it is at present. Now, as there is a non-negligible chance that business-as-usual could result in the destruction of much of the global economy, the option value of reducing the probability and scale of that wipe-out is very high; so the ruling may yet have very high, very positive economic consequences beyond the Netherlands.

overview

In many ways, the Dutch are about to go through, at small scale, what the rest of the world is about to go through at much larger scale. We've known for about 30 years that almost-complete global decarbonisation was necessary, and that the later we left it, the more expensive it would be. And then there was very little action in most countries. So now, not only do we have to decarbonise in about half the time we originally had (which will thus be more expensive), but we'll also have to spend a huge amount on adaptation too, as a lot of global warming is already in the pipeline and almost completely unavoidable over the next 40 years.

costs, benefits, prices, quantities

The negative externalities of the current system outweigh the benefits; so once we've transitioned away from fossil fuels, we'll be more economically efficient that we would otherwise have been; but there are short-term costs attached to that transition, and so resources will be diverted from other activities and into an accelerated transition.

The accelerated action required in the Netherlands 2015-2020 will be to temporarily increase prices for the mitigation measures deployed; and those prices will then, post-2020, be lower than they would otherwise have been, as the supply chains will have expanded.

Regarding demand for oil, coal and gas: they are all internationally traded commodities, so a decrease in Dutch demand will add a little downward pressure on their prices across Europe; however, Dutch demand is a small proportion of total European demand , so this price effect will be very small.

The Dutch have been investigating various forms of road pricing for around 30 years; and planned out to some detail. So we may see some version of that finally implemented. Now, that would be more economically efficient in the long run: fossil-fuelled car travel has a lot of externalities in addition to greenhouse gas emissions. But in the short run, there are additional costs as land-use patterns change, and people change where they shop, where they live, where they work.

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  • $\begingroup$ An accelerated transition seems like the best way to go about it. But the Dutch government can do little besides getting more and more infrastructure up and running. What are some of the things that we can expect in the in-between stage? Will the Netherlands now try to be self-sufficient in natural energy resources and minimise their imports? $\endgroup$ – Sampark Sharma Jul 1 '15 at 14:15
  • $\begingroup$ @SamparkSharma the Dutch govt have quite a few potential levers. If you want to ask specifically about the economic aspects of it, then do ask another specific question here. If you want to ask about other aspects, we have a sister site, Sustainable Living, where we deal with all related matters: the same rules hold - we tackle one specific question at a time. $\endgroup$ – EnergyNumbers Jul 1 '15 at 14:22

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