Investment Institute
Macroeconomics

Vox Populi

  • 04 December 2023 (7 min read)

  • COP 28 is taking place against a background of emerging “decarbonation backlash”. Taking stock of the latest wave of the EIB’s Climate Survey, we explore citizens’ level of climate awareness and policy preferences.
  • Another good inflation print in the Euro area makes markets even more impatient.

While we do not expect a breakthrough at COP 28 allowing a swift adjustment towards a decarbonation path consistent with the Paris Agreement targets, we take the opportunity of the current focus on the UAE conference to take stock of citizens’ attitudes towards climate change and policy preferences as they are reflected in the European Investment Bank’s Climate Survey. Contrary to a popular opinion there does not seem to be any gap left between Europeans and Americans when it comes to considering climate change as a crucial issue. Across the Atlantic, the same percentage of respondents (39%) mention it as one of the three major challenges facing their countries in the coming years.  Possibly counter-intuitively, it seems that climate sensitivity might have eroded somewhat in Europe over the last few years whereas it has remained unchanged in the US.

Europeans come out as more worried than Americans, Chinese or Indians on the economic consequences of the fight against climate change, with more concerns about its impact on employment, income, or social equality. They are also more circumspect about carbon taxes. We suspect a lot of this has to do with the fact that, relative to other constituencies, Europeans already pay significant environmentally related taxes. The European public already deals with some of the costs of decarbonation, while other constituencies have so far been largely spared. We think the Carbon Border Adjustment Mechanism, with the right narrative, may help to prevent a brewing political backlash.

While COP is in full swing, the market is fixated on the prospects of a quick reversal in the monetary policy stance and welcomed more good news on the price front. November inflation in the Euro area surprised again to the downside. The market pricing is getting extreme, in our view, with the first ECB cut now seen at the end of Q1 2024. While we agree a lot of what is the November CPI print is encouraging, we stick to the point we made last week: while from a “normative” point of view plausible macro scenarios would suggest quick and substantial cuts in 2024, we maintain our baseline to June for the first move. Messages from the ECB cannot be ignored.  

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