PROF. SIMONE BORGHESI
(Direttore della Florence School of Regulation – Climate, professore part-time presso l’EUI, Presidente dell’EAERE -European Association of Environmental and Resource Economists -, Prorettore per le Relazioni Internazionali e Professore ordinario di Economia ambientale all’Università di Siena)
interview by
Avv. Andrea Fantappiè, Prof. Roberto Cornetta, Prof. Marcello Clarich, Avv. Elisa Calaciura
I) Discussions at COP 30: the fundamental issue of lack of enforcement
Introduction:
COP 30 in Belém in November 2025 seems to confirm, once again, the structural limitations of the multilateral model based on the United Nations Framework Convention on Climate Change (Rio Agreements): all the major emitters – China, the United States, India, Russia, Brazil, but also the European Union, which has set itself ambitious targets – are formally Parties, but there do not appear to be any substantial obligations to reduce emissions, nor any sanction mechanisms in case of non-compliance. This is the predictable result of the global public good nature of climate stability: the benefits of reductions are global, while the costs are local. Without a mechanism of incentives or penalties, every state remains exposed to the temptation of free-riding. Climate assemblies, including those hosted in Belém, therefore serve to maintain global attention, but have so far been unable to change the incentive structure or resolve the fundamental problem of lack of enforcement.
Questions:
- In Belém, there was discussion of new financial mechanisms and centralised carbon markets, as well as updating national plans to reduce climate-changing emissions. What concrete steps have been taken in these directions?
S.B. Small steps are being taken, especially with regard to carbon markets, which are the main focus of my research. Since 2023, I have been conducting a research project called LIFE COASE. The acronym stands for Collaborative Observatory for the Assessment of the EU ETS, as well as being the surname of Nobel Prize-winning economist Ronald Coase.
In this project, we bring together, even physically around a table, the governments of the world’s major carbon markets. The active players in the project are therefore: the European Commission, the carbon market regulators of California, Quebec, Switzerland, the United Kingdom, China and New Zealand. Recently, Brazil has also joined as an observer.
What we do is provide technical support to carbon market regulators through reports on the performance of these markets, accompanied by proposals for the alignment of carbon markets.
At present, we have carbon markets at the macro-regional level (such as in Europe) or at the national level, as in the cases I mentioned. However, we are still a long way from achieving the goal of a global carbon market.
Today, carbon markets cover about 19% of total emissions, compared to only 5% in 2005. They are certainly growing and are a tool that can allow, as they say in economics, the internalisation of externalities, i.e. putting a price on polluting emissions.
In Europe, we have seen this price rise from less than €5 in 2017 to around €75 today. Prices are also rising in other contexts, such as those I mentioned earlier.
There is still a long way to go, but some steps have already been taken. For example, there is an Open Coalition for Compliance of Carbon Markets, which is being discussed right now and which I think is promising. There is also a lot of discussion about the new Carbon Markets and how to regulate them, a crucial issue for the future in terms of greater involvement of emerging countries.
- In light of the current geopolitical situation, do you see any signs in this COP 30 that go beyond the logic of mere voluntary coordination between certain countries?
S.B: Brazil, the host country of this COP, has shown signs of wanting to go beyond voluntary coordination to finally turn words into action. In fact, this was supposed to be the COP of action.
However, in all honesty, given the current geopolitical situation, I think it will be difficult to make significant progress on this occasion. I am sorry not to be optimistic because I see the delegations being very active, very involved and very eager to achieve results.
For example, I was struck by the fact that 82 countries have returned to forcefully raising the issue of ‘transitioning away’ from fossil fuels, which was also discussed intensely and with conviction in Dubai in 2023. On that occasion, even the United Arab Emirates seemed determined to support this transition, despite the fact that their economy is based on fossil fuels.
In recent times, this desire seems to have faded, and there has been no further talk of transitioning away. So it is good that 82 countries returned to the issue with conviction at the COP in Belém. However, the United States is notably absent from this group, and this is a very significant absence. Furthermore, climate policies remain voluntary and there is still a lack of effective enforcement mechanisms at the international level.
- In your opinion, what political or institutional conditions would need to be in place for large emitters to finally accept a system of incentives or penalties that would make cooperation climate-effective?
S.B: Climate issues need to be linked to economic and trade issues. In order to achieve, to convince, to bring the major emitters on board, I think we need the ability to agree, even collaterally, on other issues.
In a period of trade wars, which the Trump administration has started, all this becomes extremely difficult.
I would like to add a small footnote to the question, because we need to make a distinction between the major emitters at this point in time. This distinction is probably unexpected, because the largest emitters are China and the United States, but they behave completely differently from each other in terms of climate policies.
The United States has what I would call a climate denier approach. I am not talking about the whole country, but obviously about the Trump administration at this moment in history. China, on the other hand, has a long-term economic approach, even before an environmental one. China began investing in new technologies before others did, sensing the comparative advantage that this could bring commercially.
Having had the opportunity years ago to train some representatives of the Chinese administration, I can say that, until a few decades ago, China was completely unfamiliar with environmental concepts. Now, however, it is truly at the forefront in certain respects.
For this reason, I think it is important first and foremost to make countries understand the economic advantages of the transition, to encourage them to undertake it with conviction and to join a climate coalition of countries that are more ambitious in environmental terms.
II) Developments and prospects: technologies, transition costs and investment in emerging countries
Introduction:
In recent years, technological innovations — particularly in solar, batteries and some segments of hydrogen — have reduced costs far more than traditional economic models predicted. This seems to open up the possibility of a faster transition, but it requires substantial investment in emerging and developing countries, where the cost of capital is much higher.
This COP also discussed the localisation of climate action, the expansion of financing, the reform of multilateral institutions and new de-risking tools, but without defining how to mobilise private capital on a large scale or how to make future commitments more credible.
Questions:
- What concrete instruments — financial, technological or governance — do you consider essential to transform the decline in the cost of clean technologies into a real acceleration of the transition in emerging countries?
S.B: Climate finance, technology transfer and capacity building are the three elements needed to turn this great technological progress into reality.
Since 2010, the cost of solar energy has fallen by about 90%, and wind energy by about 70%.
We never expected such a rapid process. However, to transform it and increase its scale in emerging countries, we need these three things:
- climate finance;
- technology transfer with effective financial instruments (emissions trading and carbon markets can be one of these), which lead to the frontier of technological innovation;
- capacity building, because if we bring in the technologies but there is no human capital to use them, the process will not evolve.
- In your opinion, what ‘non-technical’ obstacles continue to block this transition and investment in emerging countries?
S.B: Mainly, I would say the last one I mentioned, namely a problem of education and lack of skills, which slows down the process somewhat. I could also mention the problems of corruption. In some cases, the financial flow may have reached certain countries, but then the system was not transparent enough to transform the flow of money into a flow of investment.
This is a problem we are very familiar with.
III) Geopolitics, climate clubs and the risk of fragmentation
Introduction:
On a geopolitical level, the situation is not promising: the specific commitment of the major economies—the United States, the European Union, China, and Japan—remains the only realistic way to impact global emissions.
However, the new US administration does not seem to be open to constructive collaboration with Beijing, despite some converging industrial interests (such as Tesla’s presence in the Chinese battery supply chain). Among other things, as is well known, the United States withdrew again this year from the 2015 Paris Agreement, which sets targets for reducing greenhouse gases.
China, despite being technologically very advanced in the renewable energy sector, remains heavily dependent on coal and acts mainly through parallel initiatives, such as the Digital Silk Road and the enlargement of the BRICS, whose role was recognised in the Kazan Declaration. However, the deterioration of technological and trade relations between China and the West does not help.
For its part, the European Union continues to show a growing gap between regulatory ambition and implementation capacity: an excess of often inconsistent rules slows down the transition and weakens its external credibility; moreover, defensive measures such as tariffs on Chinese electric cars do not constitute a climate strategy and risk being perceived more as instruments of industrial competition than as elements of a cooperative plan.
The idea of climate clubs, supported by much economic literature, involves agreements between small groups of countries with incentives and penalties to avoid free-riding and achieve a higher level of cooperation.
Questions:
- In your opinion, is there really political space for the creation of an effective ‘Climate Club’ with incentive and penalty mechanisms?
S.B: First of all, I would prefer to use a different term than ‘club’, which obviously suggests something exclusive. And it is: clubs are exclusive. In fact, in economic theory, a ‘club good’ is defined as a good that is excludable from consumption and non-rivalrous in consumption. Excluding others is obviously not a positive message to the countries of the so-called ‘Global South’. So I prefer to use the term ‘Climate Coalition’. Sometimes words, especially in climate diplomacy, carry weight.
That said, I am not pessimistic about the possibility of creating a “Climate Coalition”, because some of the more advanced countries could really identify effective incentive and penalty mechanisms. It is a process that we economists have been studying for many years.
At the beginning of my career, there was already a growing body of economic literature on these issues. Then Nobel Prize winner William Nordhaus further enriched it. Today, we therefore know some of the conditions for a coalition to be stable and profitable. The problem is that, as I said, this often requires agreements on other levels as well, thus linking the coalition to further economic issues.
Although dialogue between states on these issues is currently more fragile, I see that attempts to form these coalitions, such as the Open Coalition for Carbon Markets I mentioned, continue to exist. And in our own small way, I believe that, with the LIFE COASE project I mentioned, we are pursuing a sort of small coalition, a laboratory experiment, with the hope that this coalition can then grow, broadening its operational horizon to other issues of climate cooperation and beyond.
I would like to point out that the European Commission has given visibility to our project by calling it the ‘Florence Process’, because it takes place physically at the European University Institute, where these discussions are based. It is truly a moment of encounter, of dialogue behind closed doors, without journalists, precisely to allow for a very frank discussion. I see this as a sign of a slightly broader Climate Coalition that also addresses other issues.
And in Belém, I seemed to glimpse a willingness to continue along this path. However, we must ensure that it does not become a club, but a truly inclusive coalition, capable of convincing other countries of the benefits of joining and evolving, over time, into a global initiative.
- Which players — among the United States, China, the EU and the BRICS countries — could realistically take the lead in such an agreement, given the growing technological and commercial tensions?
S.B: I believe that the European Union should be recognised for its leadership role in the environmental and climate policies implemented to date. One figure stands out above all others: in Europe, the sectors subject to the Carbon Markets I mentioned earlier have reduced emissions by around 47% over the last 20 years, i.e. since these instruments came into force. Furthermore, at a general level, considering not only the ETS sectors, we have reduced emissions by 41% at European level. I remember that until a few years ago we still had the so-called 20-20-20 targets, i.e. the goal of reducing emissions by 20% by 2020: at the time, this seemed very ambitious. Instead, not only have we achieved the target, we have more than doubled it, thus increasing our ambition in a realistic way precisely because we have managed to achieve the intermediate targets we set ourselves along the path to decarbonisation. In this respect, Europe has truly played a leading role.
Now this leadership is somewhat at risk. At risk from what? From the attitude of the United States, which obviously does not want to be the leader itself, but is trying to undermine global climate policies. At risk from a China that is very aggressive on the markets and has overtaken us in terms of technology. Perhaps it is also being jeopardised by the BRICS countries, which are increasingly acting as a separate entity.
However, I do not see any capacity for climate leadership in the BRICS countries, nor in the United States. I see potential leadership in China, but at least initially, this could steer climate policy in a less ambitious direction than the leadership that Europe is capable of assuming. On the one hand, Europe has set itself very ambitious environmental targets in terms of reducing total emissions. China, on the other hand, has set its reduction target not in terms of total emissions, but in terms of emissions intensity: i.e. emissions divided by gross domestic product. This does not necessarily imply a reduction in total emissions. For example, if gross domestic product increases while emissions remain the same, intensity is reduced, but pollutant emissions do not fall.
However, China also seems intent on changing its target in the future, aiming to reduce total emissions rather than just emissions intensity.
IV) The Italian and European contribution
Introduction:
With regard to Italy, the Minister for the Environment and Energy Security (Pichetto Fratin) pointed out that Italy’s contribution to climate finance has ‘grown in one year from €838 million to €3.44 billion, thanks to the joint mobilisation of public and private resources through the Italian Climate Fund‘. The Minister then recalled ‘the Mattei Plan, designed to support stability and growth in Africa through equal partnerships with a focus on transition’ and also reiterated the importance of the principle of technological neutrality.
At European level, we know that, before the start of COP 30, the European Union’s environment ministers reached a qualified majority agreement (with the support of 21 states, but with Poland, the Czech Republic, Slovakia and Hungary – the so-called Visegrad Group – and with Belgium and Bulgaria abstaining) on cutting net greenhouse gas emissions by 90% by 2040. The commitment on nationally determined contributions (NDCs) to be presented at COP30 in Belém also provides for a reduction in emissions of between 66.25% and 72.5% by 2035 compared to 1990 levels. In addition, the agreement provides for a one-year postponement, to 2028, of the introduction of the new carbon tax on transport and heating fuels (ETS2), the reference to biofuels (as requested by Italy), and the increase from 3% to 5% of international carbon credits. The text of the agreement will now have to be negotiated with the European Parliament.
Questions:
- What proposals and ideas did Italy bring to COP 30 and what agreements did Italy sign during the Conference?
S.B: Obviously, at the time of recording this interview, the COP is still underway and, as you know, things usually get finalised in the last few hours, often in extra time, after the end of the proceedings, when the technicians and representatives of the various delegations reach an agreement, partly because they are exhausted.
I have certainly been impressed so far by the initiative called the ‘Clean Energy Ministerial Future Fuels Action Plan’, which essentially aims to boost the use of ‘sustainable fuels’, quadrupling it by 2035. Italy is at the forefront with Japan, Brazil and India. Our country is trying to play a role beyond European policy. In other words, it is trying to position itself as an important player at a time when, even within our own country, the trend is not particularly favourable to climate policies.
With regard to the ETS2 system you mentioned in your introduction, I would like to mention a figure from a study we recently conducted with Jacopo Cammeo, a young colleague from the team I lead at EUI, in which we sought to understand the impact of ETS 2, the new carbon market system, on Italian households. This system essentially applies to suppliers of fuels used for heating buildings, road transport and small industrial activities.
We simulated two scenarios with carbon prices of €50 and €85, estimating that the expected impact of ETS 2 should be around 0.95% of the average income of an Italian family. Therefore, the impact would be essentially limited and manageable, even taking into account the different social groups, income brackets, and geographical areas.
For this reason, I believe that climate policies must be accompanied, both in Europe and in Italy, by redistributive policies aimed at compensating the most vulnerable classes that could be most affected by these measures.
However, we must bear in mind that these types of instruments generate revenue to meet redistributive needs. Here too, I will give you a figure: it has been calculated that the carbon markets we mentioned earlier will be able to generate twice as much revenue by 2050 as the PNRR’s Covid package. We are therefore talking about very large sums, obviously spread over a much longer period of time. Covid was a short-term shock; climate change, on the other hand, is a long-term stress and therefore, as such, the measures to deal with it must also be more spread out over time.
The message is: these economic instruments can generate the revenue we need to make the impact of policies acceptable, an impact that is sometimes overestimated.
- What future do you see for environmental and energy policies within the European Union if every initiative aimed at imposing specific targets for the whole Union is subject to the principle of unanimity and, in any case, to the blocking of certain countries?
S.B: In my opinion, this is a broader problem than environmental and energy policies that Europe must address and tackle. Unanimity is a tool that certainly protects everyone, but it also blocks progress and leaves us in a situation of status quo. It is a kind of veto, and I believe that we must be able to move to majority decisions, at least by qualified majority. However, this is precisely why we have adopted the Carbon Markets instruments, which are the ones I deal with at the research and policy level. Previously, there had been long-standing attempts to introduce a European tax on CO2 emissions, but we do not have a common European fiscal policy; we have a common monetary policy and a common euro area, but taxation remains a national competence and, as a result, any decision on taxes requires unanimity.
The advantage, if I may say so, of carbon markets is that, since they are not a fiscal instrument, they only require a qualified majority for their reform and implementation. This is what has allowed us in Europe to embark on a path of climate policies that we would otherwise never have started, and we would still be searching for a solution that would never come.
