Policy Issues

In the context of policy debates around global challenges such as the climate change and the systemic economic crises or the rising economic inequality, a major difficulty arises from the misalignment of private and public incentives. Although there is no clear-cut definition “public interest” in general,  in the context of these global challenges the direction is often clear. For instance, there is a consensus, both social and scientific, on the fact that it is of public interest to move our economies from brown to green energy sources, while the private interest of the brown energy industry advocates either for the status quo or for obtaining guarantees on rent extraction in the transition to green energies.

Because of the complexity of the policy process and the imbalance in the representation of the interests of various social and economic groups, specific private interests tend to be overrepresented in the end. The goal of the SIMPOL platform is to understand how crowdsourcing can be used for the aim of a more balanced representation of interests in the EU society. To this end we engage a variety of stakeholders (researchers, NGO’s, the industry and the general public) in crowdsourcing the development of network maps, an innovative and effective way to illustrate the role of the various socio-economic actors involved in shaping the policy making process and the relations among them.

Some caveats about Crowdsourcing

  • Although specific competence may be required to fully understand the details of many policies and their implications for society, often no specific competence on the subject is necessary to understand the dynamics of vested interests at play. There is a perception, among part of the EU citizens, that the EU policy making process is strongly influenced by the top corporations, both national (through their member states) and multinational, to obtain favorable regulations or specific amendments to existing regulations. To be clear, the goal of the SIMPOL platform is not to determine to what extent this perception is well-founded or not. This question requires data that currently does not exists or is very hard to consolidate. Moreover, the channels by which influence is exerted are often via soft power, which is hard to detect by nature. Instead, our goal is to devise a workflow to increase the transparency of the process by which, in the policy cycle, policy objectives are selected and evaluated, with the aim to increase the representation of the public interest, in particular in those areas where the public interest is relatively well-defined and misalignments between private and public interests are documented. The workflow is based on big data technologies, network analysis and crowdsourcing to both experts and non-experts citizens.

Policy issues:

 


Climate and Energy Policies: The 2030 Framework

Aims and scope of the policy

Climate and Energy policies specify how countries pursue their objectives in terms of energy production and consumption and greenhouse gas emissions.  At the international level, climate negotiations play an important level for national climate policies, with the latest being COP 21, which took place in Paris in December 2015.

The umbrella framework of the European Union is the “2030 framework for climate and energy policy”, setting objectives for the most important topics in the climate and energy policy discussion between 2020 and 2030. In 2013, the European Commission published a green paper on the 2030 framework and launched a public consultation process to explore the public opinion on a set of questions regarding the 2030 climate & energy framework. The outcome was a set of responses by firms, organizations and individuals. The way the consultation was carried out makes it difficult to analyze the results. Along with negotiations at the level of the EU Commission, the EU Council and the EU Parliament, these responses led to the final decision on the EU targets in October 2014 by the EU Council:

  • at least 40% reduction of GHG emissions
  • 27% of share of renewable energy
  • 27% reduction of energy consumption

Although the targets have been agreed on, the specific way they will be implemented through directives is still subject of discussion at EU and national level.

Rationale

The 2030 framework defines the intermediate goal aiming towards the reduction of greenhouse gas emissions by 80-95% below the 1990 level by the year 2050. It addresses a number of issues, such as the European Trading System, Energy Efficiency, Renewable Energy and Energy Security.

Key events and timeline

The EU Commission published the Green Paper in March 2013. The 2030 framework was adopted by the European Council in October 2014. Several directives that support the implementation of the 2030 Framework are currently under review and will be amended in 2016 and 2017.

Key actors

The key policy actors include the European Commission, the European Council and governments of the member states of the European Union. The results of implementing the 2030 framework can have an impact on all european citizens and induce major shifts in the European economic landscape. The impact on economic growth, unemployment, taxes and income distribution of these courses of action might be very different and will have a major and lasting impact on European citizens.

Related Ideas and policies

In the process of revising the ESD, RED and EED and reforming the EU-ETS, important insights about the balance of power between these actors can be gained from the EU2030 consultation.  In turn, citizens can have an impact on the policy process if they have the means and the information necessary to influence upcoming policy decisions.  The aim of this platform is to create this information base and enable citizens like you to actively shape new policies through increased transparency.

 

Discussions

A number of questions relevant to the topic include:

  • Which interest groups exist in the field of climate and energy policy in Europe?
  • What are the most controversial topics in the debate?
  • How do actors think that stronger energy independence & energy security can be reached in Europe?
  • Which actors prefer market based solutions and which actors think that regulatory policy solutions are needed?
  • What is the balance of power between the different interest groups?

To contribute to our crowdsourcing initiative on the 2030 energy and climate framework, please visit our Crowdsourcing page.

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COP 21 and 22

Aims and scope of the policy

COP 21 stands for the Conference of the Parties (the members of the United Nations Framework Convention on Climate Change, UNFCCC) COP number 21 (“COP 21”). It was held in Paris, France in 2015. The aim of this conference was to achieve an agreement on stabilising atmospheric concentrations of greenhouse gases (GHGs) to avoid “dangerous anthropogenic interference with the climate system” and establish the path on the way to decarbonization [7].  During the Conference, the Paris Agreement was negotiated by representatives of 195 countries [2].  As of August 2016, the Paris Agreement was signed by 180 members of the UNFCCC and ratified by 22 members [2]. The low ratio of ratification has not allowed the treaty to enter into force [2]. The agreement has set  a number of goals including: (1) limiting the increase in global average temperature to 2 °C above pre-industrial levels and even with efforts of reaching the limit of 1.5 °C, (2) adapting to climate change and reducing emissions of greenhouse gases, and (3) attempting to channel investments into projects that have low greenhouse gas emissions [2]. In order to start the preparations for entry into force of the Paris Agreement, it was decided to schedule COP 22 conference.  The 22nd annual conference of members of the UNFCCC (“COP 22”) will be held in Marrakech, Morocco in November 2016.

Rationale

The scientific consensus on climatic changes related to global warming is that the average temperature of the Earth has risen between 0.4 and 0.8 °C over the past 100 years. The increased volumes of carbon dioxide and other greenhouse gases released by the burning of fossil fuels, land clearing, agriculture, and other human activities, are believed to be the primary sources of the global warming that has occurred over the past 50 years. Scientists from the Intergovernmental Panel on Climate carrying out global warming research have recently predicted that average global temperatures could increase between 1.4 and 5.8 °C by the year 2100. Changes resulting from global warming may include rising sea levels due to the melting of the polar ice caps, as well as an increase in occurrence and severity of storms and other severe weather events, thus affecting life and prosperity of the world’s population. In order to combat climate change and the increasing global greenhouse gas emissions, the world community has to agree and enforce a plan that aims to reduce global greenhouse gas emissions, adapt to the changes resulting from climate change, and work to invest in low-carbon-emitting projects.

Key events and timeline

How will Paris be followed up in 2016? The Paris Agreement enters into force in 2020 but the Paris Outcomes will start driving changes across the international system in 2016. E3G have identified 12 that will maintain momentum:

  1. 17-19 December: EU Heads of State Council
  2. 18-19 February: World Economic Forum
  3. March: Release of China’s 13th Five Year Plan
  4. 11-12 April: UNGA high-level thematic debate: implementing commitments on Sustainable Development, Climate Change and Financing
  5. 15-18 April: World Bank and IMF Spring Meetings
  6. 16-26 May: UNFCCC Intersessional
  7. 26-27 May: G7 Leaders, Japan

Key actors

The main actors in the annual Conference of the Parties are the representatives of the member countries of the United Nations Framework Convention on Climate Change (UNFCCC).

Related Ideas and policies

Green Finance: Impetus Grows for Carbon Pricing, Clean Energy (reference no. 9 below)

“There have been made a several announcements supporting carbon pricing and clean energy.  Ten leaders have issued a joint vision statement laying out the goal of doubling the percentage of global greenhouse gas (GHG) emissions covered by explicit carbon pricing to 25% by 2020, and of doubling it again to achieve 50% coverage within the next decade. In separate news, over 25 countries have pledged to unleash a potential investment flow of up to US$1 trillion into solar assets. And for its part, the New Development Bank has announced it will provide US$811 million in a first round of loans for clean energy projects in Brazil, China, India and South Africa. These initiatives will contribute to the implementation of the Sustainable Development Goals (SDGs), especially SDG 7 (Ensure access to affordable, reliable, sustainable and modern energy for all) and SDG 13 (Take urgent action to combat climate change and its impacts). Today, around 40 countries and 23 cities, States and regions around the world are using carbon pricing schemes, which are worth about US$50 billion and cover about 12% of global emissions.”

 

Adaptation Committee and LEG Embark on Tasks Mandated by Paris Agreement (reference no. 10 below)

“At its ninth meeting held in Bonn, Germany, from 1-3 March 2016, the Adaptation Committee (AC) agreed on a 2016-2018 revised workplan in line with the new mandates from COP 21 with the overall aim of contributing to the global goal on adaptation (Article 7.1 of the Paris Agreement), and the principles guiding adaptation action (Article 7.5 of the Paris Agreement).”

 

Portfolio Decarbonization Coalition (reference no. 11 below)

“Portfolio Decarbonization Coalition issues an annual report which provides an overview of the decarbonization approaches and strategies of its 25 members, including investing in renewable energy, energy efficiency and clean technology, reducing or excluding investments in fossil fuels, shifting capital from higher to lower carbon intensity enterprises, and encouraging companies in their portfolios to reduce emissions and support the transition to a low-carbon economy. The report shows that investors can decarbonize their portfolios without harming investment performance.”

Discussions

COP21 has raised a number of questions, including:

  1. Which of the climate policies – new emission targets within the EU ETS  or introduction of the carbon tax – are preferable for the transition to the green economy?
  2. In case of implementation of the carbon tax, how much should it be?
  3. Would Green bonds help to finance renewable energy technologies?

 


Quantitative Easing

Aims and scope of the policy

In public finance, quantitative easing refers to a monetary policy in which the central monetary authority increases the money supply by buying financial assets from the government and/or other financial institutions. The European Central Bank (ECB) calls this process the Expanded Asset Purchase Programme (EAPP). The ECB aims to maintain price stability and reach normal inflation levels, subsequently giving easy lending to businesses, creating jobs, and increasing economic growth. Due to the financial crisis, the interest rates set by the ECB have reached their lower bounds, which meant that changing the interest rates cannot further be an effective method to influence the economy. As a result, the ECB resorted to quantitative easing. The ECB places its EAPP under four categories: (1) third covered bond purchase programme (CBPP3), (2) asset-backed securities purchase programme (ABSPP), (3) public sector purchase programme (PSPP), and (4) corporate sector purchase programme (CSPP). (Adapted from ECB online)

Rationale

Quantitative easing influences the economy by a general mechanism: The ECB’s purchase of financial assets (which are usually variations on loans) increases the demand for these assets, which increases their price, encouraging the issuers of these assets to make more of these assets (i.e., more loans). As a result of a better supply of loans, the economic conditions improve. Additionally, the ECB’s purchase of financial assets works as a signal to the market that the ECB intends to maintain low interest rates, which acts to dampen uncertainty in markets. (Adapted from ECB online)

Key events and timeline

The following are the dates of introduction of each of the four categories of the EAPP.

  • third covered bond purchase programme (CBPP3): October 2014
  • asset-backed securities purchase programme (ABSPP): November 2014
  • public sector purchase programme (PSPP): March 2015
  • corporate sector purchase programme (CSPP): June 2016

Key actors

The key actors in quantitative easing in the EU include ECB, central banks of member states of the EU, and the European Banking Federation, which represents european banks.

Related ideas and policies

A central bank would normally adjust the interest rates in order to keep the economy functioning well and in order to improve overall economic conditions. But since the financial crisis, the interest rate has already been taken down to its minimum, and it cannot be further used to improve the economic conditions. Hence, additional, non-standard measures were needed, such as QE. One must ask whether other policies would have been more effective in improving the health of the economy.

Discussions

The short-term and long-term effectiveness of the EAPP is part of the debate. There are concerns about fueling new asset bubbles, as well as concerns about the fact that, in the absence of growth of demand, this is no reason why firms would want to borrow more. One could also think of what could happen to the assets that the central bank accumulates with QE; namely, would interest rates not go so high when the central bank ultimately sells these assets? And if that happens, would this not thwart the intended economic recovery?


Basel III Accords

Aims and scope of the policy

Basel III is a global regulatory framework developed by the Basel Committee on Banking Supervision (BCBS) for financial institutions in order to address the inadequacies emerged in the financial crisis of 2007-08. The dimensions covered by the Basel III framework include: (1) the capital ratio, (2) the leverage ratio, and (3) liquidity coverage ratio (LCR), and (4) net stable funding ratio (NSFR).

In particular, the framework introduced a non-risk based leverage ratio (see: Basel III Leverage Ratio) complementary to the traditional risk-based capital requirements. The leverage ratio is intended to “restrict the buildup of leverage in the banking sector, to avoid destabilising deleveraging processes that can damage the broader financial system and the economy; and reinforce the risk-based requirements with a simple, non-risk based “backstop” measure” (Banking Supervision, 2014). The leverage ratio is defined as capital divided by the exposure measure, expressed as a percentage:  Leverage ratio = Capital measure / Total Exposure measure. The total exposure measure includes: on-balance exposures, off-balance sheet item, derivative exposures; securities financing transaction. Banks are required to publicly disclose their Basel III leverage ratio on a consolidated basis from 1 January 2015. Currently (from 1 January 2013 to 1 January 2017) there is a minimum requirement of 3%. More restrictive requirements may apply to the SIFI (Systemically Important Financial Institutions). Notice that a leverage ratio of 3% implies that total exposure can be up to 33 times larger than the capital. In such extreme case, an adverse shock leading to a relative loss of 3% of total assets would imply the loss of the entire capital of the bank.

Rationale

The crisis revealed that capital buffers, leverage, and liquidity are key factors that affect the stability of the banking system. Among other issues, the banking system suffered from insufficient capitalization, overleveraging, and inadequate preparedness to face liquidity shocks. Hence, enforcing more restrictive limits on these dimensions is expected to strengthen the banking system.

Key events and timeline

According to the dates mentioned on the the Basel III documents, the accord was introduced in 2010. The accord’s statutes are to be implemented by banks by the year 2019.

Key actors

The BCBS was responsible for issuing the official reports and carrying the studies and the siege of the negotiation. National central banks are part of the BCBS. Commercial banks were consulted in the development of the Basel III accord, e.g. through European Banking Federation. The Basel III regulations have to be applied by (commercial) banks (by the year 2019).

Related Ideas and policies

Prior to the arrival of Basel III, banks had to adhere to the previous versions of the Basel Accord, namely Basel I and Basel II.

Discussions

Leverage matrix structure (interbank leverage network) matters, not just maximum leverage. Notice that in many sources leverage is usually defined as total assets divided by capital. In our research work, we show how the notion of leverage can be extended to the notion of Leverage Matrix, whereby leverage is decomposed into exposures across various asset classes and various counterparties (see: Leveraging the Network). The structure of the leverage matrix matters for the stability of the financial system: for a specific level of leverage that banks may have on average, the systemic losses caused by the same shock depend on the exact structure of which bank is exposed to which.

Leverage and interconnectedness: In The Price of Complexity in Financial Networks, we show that both higher leverage and higher interconnectedness in the banking system decreases our ability to make estimates on default probabilities and hence to correctly price debt instruments. Hence, a potential tradeoff emerges between financial stability and market complexity.

The Criticism section in the Wikipedia article on Basel III states a number of points to consider, including, for example, the reliance on standardized assessments of credit risk, opaque treatment of derivatives, and creating an incentive for banks to circumvent the regulatory framework.


Capital Markets Union (CMU)

Aims and scope of the policy

The aims of the Capital Markets Union include [6]: building a Capital Markets Union, lowering barriers to accessing capital markets, widening the investor base for SMEs, building sustainable securitisation, boosting Long Term Investment, developing European private placement markets and diversifying the supply of funding, improving access to finance and market effectiveness, unlocking more investment for all companies, especially SMEs, and for infrastructure projects, attracting more investment into the EU from the rest of the world, and making the financial system more stable by opening up a wider range of funding sources.

Rationale

“The Commission’s priority – Europe’s priority – is jobs and growth.  To get Europe growing again, our challenge is to unlock investment in Europe’s companies and infrastructure. The €315bn investment package will help to kick start that process. But to strengthen investment for the long term, we need to build a true single market for capital – a Capital Markets Union for all 28 Member States” [6].

Key events and timeline

The following dates summarize the key events pertaining to the development of the Capital Markets Union:

  • 18/02/2015 : Date of document issue
  • 18/02/2015 : Adoption by Commission
  • 18/02/2015 : Supplement
  • 19/02/2015 : Transmission to Council
  • 19/02/2015 : Transmission to Parliament
  • 19/06/2015 : Resolution/conclusions adopted by Council
  • 02/07/2015 : European Economic and Social Committee opinion
  • 06/07/2015 : Debate in Parliament
  • 08/07/2015 : Committee of Regions own-initiative opinion
  • 09/07/2015 : Results of vote in Parliament
  • 09/07/2015 : Decision by Parliament, 1st
  • 09/07/2015 : End of procedure in Parliament

The Capital Markets Union plan is currently implemented as a European Parliament Resolution on Building a Capital Markets Union, 2015/2634(RSP)

Key actors

The key actors in the CMU plan includes: The European Parliament, the European Council, the European Central Bank, the European Economic And Social Committee, the Committee Of The Regions, and the European Investment Bank.

Discussions

06/07/2015: Debate in the European Parliament on the Resolution on building a capital markets union:

http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+CRE+20150706+ITEM-012+DOC+XML+V0//EN&language=EN

 

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References

  1. Banking Supervision, Basel Committee on. “Basel III leverage ratio framework and disclosure requirements.” (2014).
  2. “Paris Agreement.” Wikipedia. Wikimedia Foundation, n.d. Web <https://en.wikipedia.org/wiki/Paris_Agreement>. 10 Aug. 2016.
  3. CELEX: 52014DC0903
  4. Official Journal of the European Union, C 19, 21 January 2015, page 1-4
  5. Political Guidelines of Jean-Claude Juncker, President of the European Commission, presented in the European Parliament on 15 July 2014
  6. CELEX: 52015DC0063
  7. “Find out More about COP21.” UNFCCC COP 21 Paris France. Web <http://www.cop21paris.org/about/cop21>. 11 Aug. 2016.
  8. “Europe’s Great Alchemist.” The Economist. The Economist Newspaper, 29 Nov. 2014. Web <http://www.economist.com/news/europe/21635053-jean-claude-junckers-kick-start-economy-rests-some-magical-thinking-europes-great>. 11 Aug. 2016.
  9. “Outlook on Green Finance: Impetus Grows for Carbon Pricing, Clean Energy.” Climate Change Policy & Practice. Web <http://climate-l.iisd.org/news/outlook-on-green-finance-impetus-grows-for-carbon-pricing-clean-energy>. 11 Aug. 2016.
  10. “Adaptation and Loss and Damage Update: Adaptation Committee and LDC Expert Group Begin Work under Paris Mandate, Climate Change Adaptation, DRR and Sustainable Development Interlinkages Come to the Fore” Climate Change Policy & Practice. Web <http://climate-l.iisd.org/news/adaptation-and-loss-and-damage-update-adaptation-committee-and-ldc-expert-group-begin-work-climate-change-adaptation-drr-and-sustainable-development-interlinkages-come-to-the-fore>. 11 Aug. 2016.
  11. “Portfolio Decarbonization Coalition Announces New Members, Releases First Annual Report.” Climate Change Policy & Practice. Web <http://climate-l.iisd.org/news/portfolio-decarbonization-coalition-announces-new-members-releases-first-annual-report>. 11 Aug. 2016.