Green Depreciation and European Recovery

BRUSSELS – In the coming months, European leaders will confront two major challenges. First, they will need to find a way to turn a fragile upturn in economic conditions – driven primarily by lower oil prices, a weaker euro, and unconventional monetary policies – into a lasting recovery. Then, they will need to push for real progress in the transition to a low-carbon future, ahead of the United Nations Climate Change Conference in Paris at the end of the year.

At first glance, these goals may seem contradictory. But they need not be. Indeed, one policy proposal could help achieve both: an accelerated depreciation scheme for investments, with special rates for green investments. The coming G-7 meeting in Germany would be a good moment to announce a new package of incentives that would boost investment in general, with a focus on energy efficiency in particular.

It is not yet clear that Europe’s return to economic growth is here to stay. Since 2010, its performance has lagged behind that of other advanced economies. Even in Germany, the European Union’s strongest economy, investment has not yet picked up strongly.

Similarly, there is an urgent need to intensify the fight against climate change. Every year that passes before we make the transition to a low-carbon economy carries with it mounting costs. The International Energy Agency estimates that for every euro not invested in carbon reduction before 2020, we will need to spend more than four euros afterward to bring climate change back under control.