On the road to a green transition, lay numerous opportunities and challenges. In an interview with Phileleftheros, Phoebe Koundouri, a world-renowned environmental economics professor and global leader in sustainable development, says that Cyprus has the potential to exploit its advantages and lay a solid foundation, striking a balance between environmental protection and economic growth. The long-term benefits can significantly outweigh the initial costs, provided that the necessary planning is done and, most importantly, implemented.
The green transition has been described as a rescuing policy for the environment. But have there been thorough studies of the economic costs it will entail and, above all, who will pay them?
First of all, accelerating efforts to reduce emissions and promote the energy transition is one of the four key topics on the agenda of the upcoming COP28 in which I will be actively involved as head of the UN SDSN Global Climate Hub, which I have the honour to direct. The economic implications of the green transition are multidimensional. Indeed, the initial investments are significant, and include the promotion of renewable energy sources, energy-efficient infrastructure and the integration of sustainable technologies. These initial fixed costs can strain short-term budgets but must be considered in light of the long-term economic, environmental and health benefits.
Our research at the Hub shows that the long-term benefits can significantly outweigh the initial costs. These include reduced operational energy costs, reduced economic damage from climate change and savings in health care costs due to less exposure of the population to pollution. In addition, the transition creates new jobs in innovative sectors and promotes the development of technology.
The financial responsibility for this transition is multi-layered and includes a mix of public funding, private investment and new financial tools such as green bonds and carbon trading (EU ETS). Also, public-private partnerships are vital, because the strengths of both sectors are harnessed. Finally, governments can play a key role in mobilising resources by providing incentives for private investment.
Do you have specific data for Cyprus? What will be the economic cost to achieve the decarbonisation it wants?
The European Commission’s 2023 report shows that Cyprus, which is heavily dependent on oil for up to 85% of its energy needs and with limited renewable energy contributions, is relatively behind in its green transition. But to address this, the National Recovery and Resilience Plan proposes a comprehensive strategy for the use of renewable energy sources. This includes the allocation of €89 million to boost energy efficiency and tackle energy poverty and €100 million for the EuroAsia Interconnector project, connecting Cyprus to the EU grid. This connection is vital to enhance energy security and increase renewable energy production. In addition, €87 million is earmarked for sustainable mobility and the promotion of electric vehicles, contributing to efforts to reduce emissions. The total direct financial cost of the Plan is €276 million, although wider network upgrades and systemic reforms may escalate the costs.
Cyprus already has to pay 300 million euros a year for the purchase of emission allowances; so many people view the whole process with suspicion. Are these policies necessary, especially in difficult economic conditions such as those we are experiencing today?
Cyprus’ annual investment of €300 million in emission allowances, amidst wider economic challenges, is a complex issue, as environmental targets need to be integrated into economic reality. In the context of the EU emissions trading scheme, this commitment is more than a regulatory necessity and is a strategic move towards a sustainable future. This participation not only encourages the reduction of emissions and the adoption of cleaner technologies but also aligns with global decarbonisation efforts. This investment is expected to reduce dependence on fossil fuels in the future, thereby enhancing energy security and resilience, elements vital to the energy transition. The transition to a green economy also has potential for economic growth, promoting job creation in sectors such as construction and renewable energy. However, the significant cost of €300 million raises concerns about economic pressure and competitiveness.
Is it feasible to meet the EU’s climate neutrality targets by 2050? I ask this because there are already many doubts about the timetables that have been set.
Achieving the EU’s climate neutrality target by 2050, based on the European Green Deal and the Paris Agreement, is a huge but achievable challenge. However, there are significant obstacles, as current UN projections show a likely increase in global greenhouse gas emissions of 11% by 2030 compared to 2010, in stark contrast to the 45% reduction required to maintain the 1.5°C temperature increase limit. These gaps are recognised and more decisive action needs to be taken, especially by the most significant polluters, who need to strengthen their Nationally Determined Contributions (NDCs) and adopt immediate emission reduction measures. In this context, we are developing and promoting holistic decarbonisation strategies that include the energy, transport and land use sectors, essential for achieving these ambitious targets. We also stress the importance of international cooperation, as reaching the 2050 target requires a collective effort that goes beyond policy improvements and includes scalable but workable solutions, and therefore we contribute to linking scientific knowledge with political action.
How do sustainability and green growth affect employment and social well-being?
In Cyprus, as in every country, green growth is a prerequisite for social well-being and requires a delicate balance between environmental protection and economic growth. Current production practices, especially high emissions, pose sustainability challenges for future generations. However, reducing production activity is not the solution, as it could have a negative impact on employment and social welfare. As a Hub, we study innovative solutions that support economic activities while promoting greener practices. The potential of Cyprus in renewable energy, especially solar and wind energy, given its geographical advantage, is particularly important. Unlike some countries in Northern Europe, Cyprus’ focus on alternative renewable energy sources is vital.
The shift towards green growth does not necessarily come at the expense of jobs or social welfare. The adoption of environmentally friendly production technologies in various industrial sectors and the promotion of sustainable methods in traditional sectors such as agriculture can create new jobs, or maintain existing ones by upgrading the skills of the workforce.
An integrated approach that aligns economic efforts with environmental goals through cutting-edge technology, resource efficiency and sustainable practices not only promotes job creation and social welfare but also fosters an environmentally friendly society. By investing in these sustainable strategies, Cyprus can develop a strong economy that not only safeguards but also improves the quality of life of its citizens.
What are the biggest financial barriers that governments and businesses face in their efforts to adopt green practices?
A shift to green practices is needed at all levels – from governments to businesses and households – to fight the climate crisis. However, this shift often faces significant economic barriers. The main barrier is the significant upfront investment required for green technologies and practices. This includes the costs associated with renewable energy, energy-efficient technologies and sustainable infrastructure, which can be particularly burdensome for small and medium enterprises. Their challenge is compounded by the limited capacity of the financial sector to assess the risks and benefits of green investments, as well as the additional financial pressure from mandatory Corporate Responsibility Reports.
Another issue relates to the uncertainty surrounding the return on investment in green technologies, which puts governments and businesses in the difficult position of having to demonstrate short-term economic benefits while pursuing long-term environmental sustainability. This challenge is further compounded by the lack of standardised environmental regulations, leading to a reluctant investment climate.
Overcoming these barriers requires a combination of comprehensive policy interventions, innovative economic incentives and strong public-private partnerships. As a Hub, we have blended financing models that combine public and private financing, reducing upfront costs and risks. Also, a clear and consistent regulatory framework is essential to create a climate of confidence for businesses to invest in green technologies.
Finally, an emphasis on the long-term economic and environmental benefits of sustainable practices is crucial. Highlighting the potential for cost savings, resource sustainability and new economic opportunities can help to promote wider acceptance and implementation of green practices.
Can you suggest three environmental practices Cyprus should adopt immediately?
Cyprus is in a unique position to benefit from targeted environmental strategies, given its geographical and climatic conditions. Three key actions can lead to significant progress:
Firstly, Cyprus should switch to renewable energy sources, particularly solar and wind energy, as soon as possible. The island’s abundant sunlight makes solar photovoltaic systems particularly effective for generating electricity, reducing dependence on imported fossil fuels and reducing greenhouse gas emissions. In addition, harnessing wind energy can diversify the energy mix.
Secondly, addressing Cyprus’ vulnerability to drought and water scarcity is critical. This includes adopting water-saving technologies, improving the efficiency of agricultural irrigation and strengthening water supply infrastructure.
Thirdly, Cyprus needs to improve its waste management by prioritising reduction, recycling and the adoption of a circular economy. Implementing effective recycling schemes for households and businesses can significantly reduce landfill waste. The circular economy model, which minimises waste and maximises the reuse of resources, offers both environmental and economic benefits.
By adopting these initiatives, Cyprus can make substantial progress in environmental sustainability, contributing to the global effort to tackle climate change and resource depletion. These strategies not only address specific environmental challenges but also enhance the overall economic and social well-being of the island, demonstrating the synergy of the 17 Sustainable Development Goals (SDGs).
How effective do you think additional fuel taxation policies, known as green taxes, are in reducing carbon use in transport? Especially in countries like Cyprus, where public transport is virtually non-existent or non-functional.
So-called ‘green’ taxes, like the fuel surcharge, are used to reduce carbon dioxide emissions in transport, but their effectiveness depends largely on a number of factors, including the effectiveness of public transport systems. In places like Cyprus, where public transport systems are inefficient, the impact of these taxes requires careful consideration.
The main objective of fuel-related environmental taxes is to provide incentives to shift from private vehicles to more sustainable transport methods. However, in the case of Cyprus, the absence of a strong public transport system calls into question the effectiveness of this strategy. As a consequence, consumers, especially those who are financially vulnerable, may face increased financial burdens without viable alternatives, leading to unfair impacts rather than desirable behavioural changes towards sustainability. Furthermore, implementing green taxes without a well-developed public transport network may raise social equity concerns, disproportionately affecting lower-income groups. This scenario may undermine the environmental objectives of the taxes.
As a Hub, we support an integrated approach. We believe that green taxes should be integrated into a broader strategy that includes significant investment in sustainable, efficient and accessible public transport. But for this transition to be fair and efficient, we also propose targeted subsidies or rebates to reduce the financial pressure on vulnerable populations, ensuring a fair and efficient shift to green practices.
To what extent are the consequences of the climate crisis reversible? What are the possible impacts of the climate crisis on the global economy and security?
Reversing the effects of the climate crisis is a multifaceted challenge. While we can mitigate or adapt to some impacts, others, in particular those affecting biodiversity and some ecosystem changes, may be irreversible. Urgent and effective action is therefore vital to minimise further damage and adapt to ongoing changes.
The climate crisis extends beyond environmental concerns, and may even threaten global peace, security and economic stability. The United Nations warns of escalating risks of conflict due to climate-related events such as sea-level rise, droughts and floods, which intensify threats to human security such as water scarcity and food shortages. This leads to migration, competition between states for resources and increased regional tensions.
The Intergovernmental Panel on Climate Change (IPCC) highlights the adverse impacts of climate change, reflected in the outcomes of the Sustainable Development Goals (SDGs), and the increased frequency and intensity of extreme weather events that disrupt food and water security. The American Security Project also echoes this perception, recognising that climate change is likely to exacerbate instability in already tense regions. From an economic perspective, the International Monetary Fund (IMF) recognises climate change as a global externality, particularly endangering the stability of lower-income countries and affecting everything from agriculture to infrastructure to health. As the Global Climate Hub, we advocate for integrated solutions that include both mitigation and adaptation strategies, including promoting sustainable economic practices, investing in resilient infrastructure, and strengthening international cooperation.