In the first two parts of this series, we exposed the failure and fraudulence at the heart of European climate policy. In this third and final part, we will explore the deeper social, economic, demographic and geopolitical dynamics that gave rise to Europe's climate hypocrisy in the first place.

Why does the EU continue to espouse its unshaken belief in multilateral negotiations and carbon trading, despite the obvious failure of both? And why do our leaders keep on lecturing developing countries on their responsibilities, while we flagrantly fail to live up to our own?

The answers relate to five longer-term dynamics in Western European society: (1) the rise of post-material values; (2) the emergence of the post-industrial economy; (3) the profound changes brought about by an aging and shrinking population; (4) the geopolitical shift away from European hegemony on the global stage; and (5) the emergence of 'footloose' capital following the globalization of production and finance.

All these factors combine to create a complex double game where European leaders keep walking into a trap where they feel compelled to say one thing yet do another. The inevitable result, as Andrew Pendleton of the Institute of Public Policy Research points out in the New Statesman today, is that Europe remains perpetually stuck in a sort of climate change Groundhog Day.

Yet it appears that even this Groundhog Day abruptly came to an end in Cancun last week, following Japan's refusal to extend its Kyoto commitments. It may soon be game over for Europe as the sun begins to set on the honeymoon of our climate leadership.

Post-Material Society
Ever since the end of World War II, the populations of Western European have navigated an historical social shift away from the 'materialistic', productivist values of the industrial era, towards the more 'post-material' values of the 1960s counterculture, stressing the quality of life and environmental protection.

Unprecedented levels of need satisfaction combined with a psychological 'affluence effect' to give rise to what Anthony Giddens has called 'life politics' - or the politics of self-actualization. This new post-material life politics is embodied by the emergence of the environmental movement and the electoral successes of Green parties across Europe, particularly in the economically strong core region of Germany, France, the Benelux and the Nordic countries.

These profound changes in the socio-political landscape, combined with the prevalence - outside of the UK - of electoral systems based on proportional representation, have created a globally and historically unique situation where even Conservative parties feel obliged to engage with progressive issues like environmental regulation.

As a result, a strong stance on climate change is - at least rhetorically - considered a baseline priority for any mainstream political party in Western Europe today. This sets the European Union apart from the United States, where many Conservatives are still associated with climate skepticism.

On the one hand, widespread engagement with ecological issues has been a positive development for Europe, because it helped contribute to a broad political consensus that radical action on climate change is needed.

On the other hand, this same very consensus has wrought its own set of problems, as the established European narrative on climate policy - which continues to focus narrow-mindedly on failing multilateral negotiations and fraudulent carbon trading - has systematically repressed all forms of criticism and dismissed it as 'climate skepticism'.

So convinced have our elites become of the need for decisive action, that little thought is expended on the question whether our approach to the problem actually makes sense. As a result, Europe's leaders have proven to be unable to adapt to failure and incorporate much-needed policy innovations.

Post-Industrial Economy
Coinciding with the rise of post-material values and ecological concern, Europe underwent the convergence of three interconnected political-economic dynamics:

(1) The emergence of the 'network society' and the 'knowledge economy' that followed the ICT revolution of the past two decades; (2) the collapse of the communist industries of Eastern Europe and the reunification of Germany; (3) the widespread embrace by European elites of neoliberal ideology and the aggressive pursuit of its mantra of liberalization, privatization and deregulation.

Ever since the early 1990s, these three dynamics have conspired to contribute to the emergence of a post-industrial economy in Europe. Manufacturing output in Western Europe may have remained relatively stable over time - with the exception of East Germany after reunification - but the relative value of manufacturing as a share of overall economic output has steadily declined.

In the meantime, consumer imports from emerging markets have vastly increased. While Europe hardly imported anything from China as little as 20 years ago, China is now Europe's biggest source of manufactured imports. For the past five years, Europe's imports from China have grown 18 percent annually.

As a result, Europe has in recent years been outsourcing most of its emissions growth to China. This makes it much easier for the EU to continue business as usual while claiming significant successes - and even a sense of moral superiority - in the fight against climate change.

This in turn helps to contribute to the illusion of European leadership on the issue, feeding into our pride and further fueling the dependency of our elites on a structurally flawed policy framework.

Demographic Shift
The emergence of the post-industrial economy, in turn, has coincided with far-reaching changes in Europe's demographic dynamics. Declining absolute population levels, particularly in Germany, Italy and the Eastern European countries, will gravely affect the EU's economic performance over the coming decades.

As the generational cohort of baby boomers comes of age, Europe is rapidly growing grayer. With the short to medium-term prospect of this demographic 'bottleneck' going into retirement and eventually passing on, it becomes a lot easier to imagine the emergence of a steady-state economy in Europe.

As a result, dealing with climate change within the Kyoto framework will become a lot easier. After all, no decarbonization will be necessary for Europe to meet its absolute reduction targets - declining population levels will do that for us.

As with the outsourcing of our emissions to China, demographic changes will allow us to live up to our international commitments while continuing business as usual. It is easy to imagine now why our leaders are so happy to cling on to the Kyoto approach of binding targets: we will barely have to do anything to meet them.

Geopolitics and the 'Environmental Union'
The post-WWII period has also seen the self-evident shift away from European hegemony to American predominance on the world stage. The rise of China, India and Brazil is further diluting European influence in global institutions, while the European Union itself remains plagued by an incoherent foreign policy that hardly ever sees its leaders speak with a common voice.

At the same time, with the public memory of WWII gradually waning and the democratic deficit of EU institutions becoming an ever greater issue of dispute, the European project as a whole finds itself in a profound legitimation crisis, epitomized by the rejection of its Constitution in French, Dutch and Irish referendums.

These developments have obviously led to a lot of soul-searching among European elites. What should Europe's purpose be in today's globalized world? How do we assert our continued relevance in international affairs without the geopolitical leverage or military power to back it up?

In this respect, the staunch unilateralism of the Bush administration - by leaving an enormous vacuum where was once Al Gore's environmental leadership - was almost like a gift to the Continent in search of an identity.

Around the same time, new ideas had begun to emerge in the study of International Relations about the importance of soft power and the global relevance of the European Dream. Europe happily embraced both notions to cast itself as the savior of the world and the defender of multilateralism in an era of nationalist narrow-mindedness.

It did not take long for European leaders like Stavros Dimas and David Miliband to suggest re-baptizing the EU as an 'Environmental Union'.

Footloose Capital
Yet despite all the well-intentioned rhetoric, Europe is also a part of a highly competitive global economy, where talk of emission reductions plays out much easier than its actual implementation.

Ever since the 1980s, the combination of trade liberalization with technological innovations in container transport, digital communications and modular production, has greatly increased the globalization of production.

Manufacturing chains now extend around the globe and capital has, to an extent, become 'footloose' - moving around rapidly in pursuit of the lowest common denominator in terms of taxation and regulation.

As a result of these changes, governments have become extremely vulnerable to 'exit threats' by large corporations. While there is little watertight proof that globalization has led to a regulatory 'race to the bottom', there is ample evidence for the sensitivity of policymakers to sustained exit threats.

As EurActiv reports, for example: "Fears that tighter controls on CO2 emissions in Europe will drive factories to relocate abroad has led the EU to grant sweeping exemptions for industries deemed to be at risk. Aluminium, steel, iron and cement producers are likely to benefit from the preferential regime."

Game Over
Europe's deeply embedded fear of affected industries relocating abroad has led to its inability at best - and its unwillingness at worst - to effectively enforce even the mild commitments made under Kyoto.

As such, the ETS, as we showed in the second part of this series, never really was a tool in the fight against climate change; rather, it served as a generous subsidization tool for Europe's most carbon-intensive industries to do nothing.

We now have a rich perspective on the complex double game that lies at the heart of European climate politics and the vast rift between our rhetoric and our actions. EU leaders may be genuine in their efforts to cater towards the ecological concerns of their post-material constituencies, but when push comes to shove, they still feel compelled to defend the national interest - often the interests of capital - at all costs.

Europe has been able to keep playing this double game with a straight face only because our post-industrial economy and our declining population levels put us in a position where we can live up to our international commitments without having to do anything for it.

But even the fake smile cannot conceal the fact that the game is over. Kyoto was a disappointment; Copenhagen was an embarrassment. Now, Cancun is unexpectedly turning out to be an improvement, with Japan finally deciding to pull the plug on Kyoto and Copenhagen altogether.

As the only major developed economy next to the EU that invested its political stake into both accords, Japan's announcement struck Europe right in the heart. The message is clear: Kyoto is dead, the years of European predominance in international negotiations are over.

Indeed, the twilight of European climate leadership is quickly passing into night - the sun is setting on our Empire after all. We need a while to rest our heads and think of an innovative new approach in the fight against climate change.

What Is to Be Done?
The EU 'solution' of multilateral negotiations, internationally binding emission targets and a market-oriented carbon trading system might have worked out neatly from a European perspective, providing ample opportunity for European countries to stick with business as usual while subsidizing industries threatened by increased competition from abroad.

However, the EU approach would prove to be appallingly inadequate at the global level. With over half the world's children still living in poverty and the global population set to increase to 9 or 10 billion people by 2050, further economic growth - and energy consumption - is not only inevitable but necessary if we are to create a future in which all humans have both the right and the ability to flourish.

Clearly, this will require a radical change in our approach to energy development. In fact, it will require a wholesale transformation of the way the world produces, distributes and utilizes energy. Because clean technologies remain at present simply too expensive to replace fossil fuels as the energy of choice, we will need nothing short of a global energy revolution.

What can the EU do to play a leadership role in this global energy revolution? First of all, we need to move away from the false pretense of moral superiority and start putting our money where our mouth is. Over the next couple of decades, massive public investments will be required in research, development and deployment of low-carbon technologies around the continent. The market alone simply will not generate the necessary escape velocity.

Money raised through the ETS could possibly provide a source for this multi-decade public investment campaign, although an EU-wide carbon tax would probably be more effective as it would be less amenable to industry lobbying.

This tax could initially be set at a relatively low level so as to be politically realistic. Once implemented, it could then gradually increase as alternative technologies become competitive enough to enable a sustained switch to clean energy.

From Twilight to a New Dawn
Yet all of this leaves us with a much larger question: now that European climate leadership on the diplomatic stage is fading, what is left of our purpose in the world? What role can Europe still play as a fading global actor? Are the ideas of an Environmental Union still relevant?

In truth, Europe still retains great latitude as a global player. As the world's first transnational political power, the EU may pack less punch geopolitically than the United States or China, but it remains the world's largest economy and its number one industrial exporter.

As such, the EU is uniquely positioned to help bring into existence the emerging green economy. BMW, Mercedes, Audi and Volvo still set the standard for luxury vehicles around the world - forward-looking investments in the automobile sector could literally make the world go electric.

At the same time, a continental super grid would connect not only the peoples of Europe but also those of North Africa and the Middle East. Portugal and Denmark spearheaded wind revolutions, while Spain and Germany are global leaders in solar.

France and Sweden are the only developed countries in the world that effectively decarbonized their economies. They might not have done so for climate reasons, but their experience demonstrates that when the need is high, Europe can move fast when it comes to energy transformation.

The most important thing to realize is that every twilight, after a period of extended darkness, eventually leads to a new dawn. Europe still has a purpose to serve - if only we accept our past failures and embrace the radical new paradigm that will help us lead the world into the Green Economy of the 21st Century.

This is the final article in a three-part series on the Twilight of European Climate Leadership:

Part I: Cancun Can't
Part II: The Failure of Emissions Trading
Part III: How Europe Can Escape Groundhog Day

How Europe Can Escape ‘Groundhog Day’

Dec 10, 2010