The Kiel Institute (IFW-Kiel) has published estimates of the potential for European Union (EU) climate policy to generate what it calls a security dividend.

By reducing dependence on fossil resources, European climate policy substantially weakens Russia's financial capacity, limiting its military ability to sustain aggression in Ukraine and beyond. Every euro by which oil consumption is cut in the European Union yields a "security dividend" of 37 cents. On the basis of the "security dividend" alone, a carbon price of 60 euros per tonne of CO₂ on oil consumption is therefore justified – over and above the climate, terms-of-trade and public health benefits. A purposeful European climate policy that reduces demand for oil and natural gas should be regarded as an important pillar of Europe's security architecture, complementing military spending, diplomatic measures and continued support for Ukraine.

The figures set out the picture clearly

Climate policy is an essential element of Europe's security architecture, particularly at a time of global crises. A new report by the Kiel Institute puts a figure on the security benefits delivered by an ambitious European climate policy. For every euro that Europe does not spend on buying oil (or spends less of), Russia's military budget shrinks by 13 cents, easing the pressure on European defence budgets accordingly – these could fall by 37 cents for every euro saved on oil purchases. The figures show clearly that a higher CO₂ price is justified from a geopolitical standpoint as well. Such a constraint would deliver a direct security benefit.

"Climate policy is not a priority competing with defence; it is a strategic complement to it," says Dr Joschka Wanner, a professor at the University of Würzburg and co-author of the Kiel policy brief "The Security Dividend of Climate Policy"¹.

the calculations above rest on the effect of global oil consumption on the Russian finances that are channelled into military purposes. The mechanism works as follows: lower demand for oil in the European Union pushes down the world market price, and part of the resulting loss falls on Russia. If European countries reduce their spending on oil purchases by 1 euro, Russia loses roughly 13 cents in state budget revenue; the offsetting effect of higher imports by other countries is already factored into the price. In wartime, this reduction will most likely be reflected one-for-one in Russian military spending. Lower Russian military spending in turn reduces the pressure on European Union defence spending.

As a result, every "oil euro" saved in Europe means, as noted above, a so-called security dividend of 37 cents. The EU could cut its security and defence spending by that amount without losing geopolitical strength relative to Russia. Or, conversely, every oil euro saved delivers the same added value to the European Union as 37 cents of additional spending on security and defence.

A speed limit in Germany would save 2 billion euros

The report authors' calculations can be used to quantify the geopolitical gains or losses arising from current EU or German climate policy decisions.

Introducing a speed limit on Germany's motorways would, by 2030, cut CO₂ emissions by around 33 million tonnes; with demand for oil falling accordingly, this would generate a "security dividend" of roughly 2 billion euros that would not have to be spent on defence.

If the EU does not grant carmakers additional time to bring their fleets into line with CO₂ emission limits, as is currently planned, the "security dividend" would be around 3 billion euros. Phasing down European Union oil consumption would generate an annual "security dividend" of 104 billion euros. That is more than the German Bundeswehr's special fund has amounted to since 2023.

On geopolitical grounds, the authors recommend setting a CO₂ price of at least around 60 euros per tonne. A higher CO₂ price would be just as sound economically and strategically as extending EU emissions trading to cover oil products in the buildings and transport sectors.

"In its own interest, Europe should impose substantial taxes on oil and gas, or use other measures to reduce demand for oil and gas," says Joschka Wanner. "Cutting emissions not only protects the climate, it also strengthens Europe's security."

In the report, the authors note that the calculations apply chiefly to the present situation, in which Russia is geopolitically aggressive. Should that aggression subside, and Russia no longer invest its oil revenues in the military on the current scale, the "security dividend" from climate measures would fall as well.

The European Union and its member states are seeking to increase defence spending substantially, given an increasingly unstable geopolitical environment and growing uncertainty as to whether Europe will be able to continue relying on US support and protection.

It should be noted that advocates of climate policy are concerned that higher defence spending could come at the expense of the emission reduction measures that are needed. Germany has introduced constitutional changes allowing the state to take on hundreds of billions of euros of debt for defence, infrastructure and climate investment.

About the institute

The Kiel Institute for the World Economy is regarded as Germany's research institute on questions of globalisation

The institute's researchers² study the drivers and effects of international economic activity, the integration and disintegration of global markets, and the scope for and limits of policy action in open economies. The institute analyses the world economy not merely as the sum of individual national economies, but rather as a global economic space that has to be understood and shaped. Its task is to identify emerging problems in the global economy and to develop practical solutions that are compatible with open markets and competition, while taking account of every person's standard of living.

The Kiel Institute focuses on applied, evidence-based economic research that employs new methodologies and observes internationally recognised standards of excellence. It takes an interdisciplinary, policy-oriented approach combining theoretical and empirical methods. Its researchers' thorough institutional knowledge and active participation in international networks ensure that the institute's research findings carry weight.

Drawing on the knowledge gained through their research, the institute's experts provide independent and comprehensive advice to German, European and international policymakers, as well as to public bodies, trade organisations and businesses. Dialogue with leading figures at international, national and regional level aims to bring in issues of public importance and to give those involved a sound basis of information for taking economic decisions.

1. https://www.ifw-kiel.de/publications/the-security-dividend-of-climate-policy-34008/
2. https://www.ifw-kiel.de/our-experts/