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José Manuel Barroso

President of the European Commission

"The Scottish enlightenment and the challenges for Europe in the 21st century; climate change and energy"

Enlightenment Lecture Series
Edinburgh University, 28 November 2006

Ladies and gentlemen,

Let me begin by thanking Edinburgh University for inviting me to deliver this Enlightenment lecture. It is a great honour to do so in a country which made such a huge contribution to that important period of Europe's history. It is also a great honour to have been awarded a doctorate Honoris Causa by the university this morning. A recognition, I think, of the importance of the European Union to the university.

It is also a pleasure to return to Edinburgh itself – one of Europe’s great cities. My first visit was for the EU summit of 1992. I remember long dark nights of painful negotiation. So it is good to see some daylight today.

I myself come from a capital city near the sea, from a country with a proud history and ancient traditions. A city with a long history of inspiration from and exchange with the rest of Europe.

Nevertheless, it is not for a Portuguese to lecture such a distinguished Scottish audience on the finer points of the Scottish Enlightenment. So what I would like to do instead is look at how great figures of that age fit into the broader, European Enlightenment. I will then look at how Scottish thinkers of the period inspire European policy development today, particularly in areas of rapidly growing concern, like energy and climate change. And I will try to show why Voltaire was right when he said that: 'Nous nous tournons vers l’Écosse pour trouver toutes nos idées sur la civilisation' [we look to Scotland for all our ideas on civilisation].

Just like today, the Scottish Enlightenment thinkers were living through a period of rapid economic, social and cultural change. They had the presence of mind to realize what they were seeing and experiencing; and they faced the meaning of that change earlier and more profoundly than other centres of the Enlightenment.

Although many of these thinkers are remembered for a contribution to one subject area – for example Hume and what we call philosophy – most were well versed in many other areas. For example, Hume wrote on economics, he produced a large History of England; Hutton wrote on philosophical matters.

One example – and there are many – of the fruitful connections between Edinburgh and Europe is provided by David Hume and his links with France and its intellectual life.

Hume admired the French and lived there for periods. He returned Voltaire’s compliment when he said: ‘the French are the only people, except the Greeks, who have been at once philosophers, poets, orators, historians, painters, architects, sculptors and musicians.’

He corresponded with Montesquieu and Turgot about tax and who might levy it. In 1763, he was Secretary to the British Embassy in Paris. While holding down this day job, he also managed to earn what one biographer called ‘the adulation of France’ in his spare time. He was a darling of the salons and intimate with ‘les philosophes’. He tried to befriend the remarkable but unstable Rousseau with disastrous results.

So Edinburgh and Paris, key centres of the Enlightenment, were closely linked. With contributions, of course, from the whole of Europe, they were hammering out the fundamentals about the basis on which, even over 200 years on, we conduct much of our political, social and economic life. Their ideas on the social contract, individual rights and obligations, the role and extent of the state, free trade versus mercantilism, taxation, competition policy and a lot more have affected our public debate ever since. They have also found themselves enshrined in written and even unwritten constitutions in states and political institutions of much of the developed world.

The Scottish Enlightenment, nourished by and nourishing Continental Europe, provided a system of thought which embraced history, sociology, law and economic analysis. All this happened at a critical time as many European countries embarked on the transformations of the industrial and democratic ages. That kind of joined-up thinking is greatly needed today.

It is no accident that I have so far omitted that famous son of Kirkcaldy: Adam Smith.

Smith was not just a man of his time. In his broad fields of expertise, and eclectic range of interests – moral philosophy, sociology, logic, economics, ethics, jurisprudence – he also resembles Renaissance man. In his continuing relevance today, and his belief that international trade can reduce frictions and promote peace, he is very much a modern European man as well.

This is someone who put consumers above special interests. Someone who saw open and fair competition as a good thing. Someone who recognised that in an open market, it isn't just the person who sells a good who benefits; the person who buys it benefits as well.

He also reserved some acid words for university professors, which in present company are probably best left unsaid. But his most significant observation, for me at least, is that open markets can be vehicles for social good.

In Book IV of The Wealth of Nations, he observed that by removing artificial barriers, and allowing the emergence of a 'simple system of natural liberty': 'the sovereign is completely discharged from a duty...for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards employments most suitable to the interest of society.'

Today, Europe must use the power of market forces for the interests of society to tackle one of the biggest issues facing all Europeans, indeed all the world - climate change.

The facts are clear. According to the Intergovernmental Panel on Climate Change, global warming has already made the world some 0.6 degrees centigrade hotter. In the worst case scenario, temperatures could rise by up to 5.8 degrees centigrade by the end of the century.

We can see the results. The last eleven years have included the ten hottest since records began; the majority of the world's glaciers are in rapid retreat.

It is tempting to be flippant, and point out that global warming will undermine Adam Smith's comments on the inefficiency of growing grapes in Scotland. But the recent reports from the International Energy Agency and from Sir Nicholas Stern provides a clear warning of the cost of inaction, and shows there is no room for flippancy.

Faced with this challenge, Europe is determined to lead by example. We should be proud of what we are doing as Europeans. We led the negotiations to create the Kyoto Treaty. We are at the cutting edge of new environmental technology. And we have set up the world's largest scheme for trading in emissions of carbon dioxide – the Emissions Trading Scheme.

By doing this, climate change has suddenly been brought into the boardroom of every major company across Europe.

Moreover, the Emissions Trading Scheme has been set up not just to give companies incentives to cut emissions. They also have an incentive to invest in emission-reduction projects elsewhere – in developing countries, for example.

This encourages the transfer of environmentally sound technologies around the world, to the benefit of everyone. After all, the problem is called global warming, not European warming. And the countries which may suffer most from it are also the poorest.

As with all new mechanisms, there have been teething problems. At the root of these has been the tendency of some Member States to be too generous in distributing carbon emission allowances last year.

But broadly, the scheme has proved a success, as Adam Smith would have expected. The market created was worth an estimated €7.2 billion in 2005. To put this in perspective, the World Bank observed that this was worth considerably more than the entire 2005 US wheat crop [€5.6 billion]. In the first six months of 2006, the market's value rose even higher, to €11.9 billion.

The investor community is quickly grasping the vast potential of a future global carbon market. A number of investment banks, concentrating exclusively on generating value from reducing greenhouse gas emissions, have now floated on stock exchanges. Investors are putting increasing quantities of capital into emission reduction projects.

Nevertheless, we have learned lessons from the original teething problems, and will improve the system. Tomorrow, the Commission will take crucial decisions on the National Allocation Plans for emission allowances of 11 Member States - including the United Kingdom - for 2008-2012. Decisions relating to the other Member States will follow soon after.

These decisions will set out the total number of allowances that governments will be able to allocate to companies in their countries.

These companies account for about half of total EU greenhouse gas emissions. So these decisions must, and I believe will, send a strong message about the EU's commitment to meet its international obligations.

That is why the Commission will be tough, but fair. To make the market work, there must be constraints on allowances. And we need the market to work, if Europe is to keep leading the fight against climate change. The rest of the world is watching to see if the ETS works. It has to. We must act today to tackle the problems of tomorrow.

Once these decisions have been taken, and governments have distributed the emissions allowances, the 'visible hand' of government regulation will fade into the background. Companies themselves will decide how much they want to emit, and buy or sell emission allowances as they see fit.

The only constraint they face is that, at the end of each year, they must be able to hand over a number of allowances to their government that matches the volume of their greenhouse gas emissions in that year.

In other words, the total amount of emissions is set by the Commission’s decisions. After that, the individual decisions of the thousands of companies in the emissions trading scheme, each acting in what it judges to be its own best interest, ensure that – as if guided by Adam Smith’s 'invisible hand' – we reduce our greenhouse gas emissions at the lowest possible cost.

This is an approach which should appeal not just to the aficionados of Adam Smith, but also to those who believe that public authorities such as the European Union are at their most effective when they set a path, create a mechanism, and allow it to work.

The Emissions Trading Scheme is one of the European policies to tackle the global problem of climate change. Another is the development of an energy policy for Europe. Energy policy was at the heart of the original European construction. It was almost forgotten for 50 years. Now it is returning to where it belongs, at the heart of the European agenda.

Why is this happening? The answer is simple. The days of cheap, secure supplies of energy are over. Global energy demand is increasing, not least because of rising prosperity in China and India. Mature hydrocarbon reserves, including in the North Sea, are declining.

The EU is currently dependent on external sources for 50% of its energy needs, which could rise to 70% by 2030. So Europe is being exposed to increasingly intense competition for global energy resources from other countries, and is becoming ever more dependent on oil and gas imports, increasing its external vulnerability.

This has transformed attitudes towards creating a European energy policy. All Europeans now recognise that, as in so many other areas, we can achieve much more by acting together and speaking with one voice in the world. It is a question of credibility and coherence. To have weight in the world, when we negotiate with Russia, with China, with the United States, we need a common voice. And to achieve that, we need common policies.

That is why the European Commission is developing a policy that ensures Europe’s competitiveness, safeguards our environmental objectives and ensures our security of supply.

Our objective is clear; to accelerate the shift to a low carbon economy. This requires several significant changes in our energy model. First, we must use energy more efficiently. By saving energy, Europe will help address climate change, reduce the energy intensity of future growth, and reduce its dependence on fossil fuels from third countries. This is why the Commission proposed last month to increase our energy efficiency by 20% by 2020.

But the main energy package will be unveiled in January. At the heart of this package will, I hope, be a commitment to new targets to reduce greenhouse gases beyond 2012. And to achieve this, we need at least three things.

- First, ambition on energy efficiency.

- Second, a true single market in energy not just on paper but in practice.

- Third, the transformation of the renewables industry in Europe. We have to send a clear message to the rest of the world. That is why I want to announce today my ambition that our January package will fix the most ambitious – but attainable – targets for renewable energy ever set by Europe, by 2020. I hope that a major contribution to achieving these new targets will come from Scotland.

Greater investment in research is essential if we are to succeed in this. That means Europe's universities and research institutes will be central to our efforts. I also believe there is a role for the European Institute of Technology, agreed in principle at the last EU Summit, in tackling climate change.

Edinburgh University is famous around the world for its research. You are presently involved in 115 projects funded under the EU's 6th Framework Programme. In fact, I understand that you are participating in all aspects of the energy theme of this programme, from renewable energy sources – ocean energy, wind turbine design, to the cleaner use of fossil fuels by using carbon capture and storage. I hope you will continue to play this important role.

Ladies and gentlemen,

Adam Smith is much misunderstood both by what I would call ‘state fundamentalists’ and by ‘market fundamentalists’. Yes, he said: ‘There is no art which one government sooner learns of another than that of draining money from the pockets of the people’. But he also said: ‘The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities’.

The fact is, Smith recognised that administrations are necessary - to administer justice, to make sure sensible rules are followed, and to create and maintain public works and institutions of great value to society.

In much the same way, Europe today needs strong institutions like the European Commission and the European Court of Justice in order to maintain the Single Market; to administer the Emissions Trading Scheme; to secure affordable and sustainable energy for future generations; and much more.

In fact many of the challenges Scotland faces today: climate change, and also others such as health pandemics, growing international competition, terrorism, demographic change, are problems that all Europeans face. They require European solutions, in partnership with governments at national, regional and local levels. To put it another way; the globalisation of problems which we are all experiencing whether in Edinburgh, Lisbon or Brussels, require at the very least a Europeanisation of solutions. European solutions that are the result not of an ideological diktat but because of a common sense, pragmatic response to the world we now live in.

My final message to you today is that those solutions are not possible without effective institutions. To deliver what you want in Europe, you must create the means to deliver the ends.

Scotland has brought many benefits to the rest of Europe. I hope, in turn, that Europe has reciprocated. Long may that partnership flourish.

Thank you.

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