The pandemic has hit Europe hard, but it won’t put a stop to the Green Deal. In fact, the green transition is the key to relaunching the EU economy.
“Europe’s man-on-the-moon moment”. This is the metaphor that EU Commission President Ursula von der Leyen chose when announcing the official launch of the European Green Deal, the transition plan aimed at making the Union carbon neutral by 2050. It was the 11th of December 2019. No one could have imagined that, at the same time, halfway across the globe the first patients suffering from a mysterious new illness were being admitted to hospitals in the Chinese city of Wuhan. Nor that those were the first signs of a pandemic that would send unprecedented shockwaves across the world.
With the virus still in full swing and pharmaceutical companies racing against time to get their vaccines ready and approved, it is still early to take full stock of the economic impact of Covid-19. In October, the International Monetary Fund (IMF) published the World Economic Outlook, predicting a 7 per cent collapse of European GDP in 2020, followed by a 4.7 per cent recovery in 2021. In the wake of the easing of lockdown measures during the summer, these projections are more promising than the figure of negative 8.5 per cent that had been suggested in June. Overall, the situation would likely have been much worse had the Union not intervened with its Next Generation EU fund, cited by the IMF as a virtuous example of a stimulus package.
However, the fact remains that the current recession has “unique” characteristics, not just for Europe but for the world economy as a whole. “The persistence of the shock remains uncertain and relates to factors inherently difficult to predict, including the path of the pandemic, the adjustment costs it imposes on the economy, the effectiveness of the economic policy response, and the evolution of financial sentiment,” the IMF points out.
There has been no lack of pushback in the face of the crisis. The EU should “forget about the Green Deal, at least for the moment” and direct its efforts only at fighting the virus, Czech Prime Minister Andrej Babiš told reporters in March. A few days later, Poland’s Climate Ministry told Reuters that, due to the crisis, “our economies will be weaker, companies won’t have enough funds to invest, completion of some important energy projects may be delayed or even suspended. These are real problems that we’ll be facing soon and the achievement of our climate goals will be even more difficult because of them”.
The IMF, however, stresses that “economic policy tools can pave a road toward net-zero emissions by 2050 even as the world seeks to recover from the Covid-19 crisis” and that “these policies can be pursued in a manner that supports economic growth, employment and income equality”.
The European Commission wholeheartedly endorses this approach, reiterating that the Green Deal is and will remain at the core of its agenda. “It would have been easy – and maybe even understandable – to just drop everything on the spot, throw our green ambitions out the window. For who has time to think about what the planet needs ten years from now, when loved ones are ill or when you have to worry if you’ll still have a job next week? People’s priorities have changed,” Frans Timmermans, Executive Vice-President for the European Green Deal, said at the Bruegel Annual Meetings in September.
“As uncertainty grows, so does the pressure on governments to provide quick fixes,” Timmerman continued. “Yet, here we are, not just maintaining our ambitions, but doubling down on the Green Deal. It was our growth strategy, and now it is also our roadmap out of this crisis, a lifeline to a better future”. The State of the Union address, which took place a few days after Timmermans’ statement, provided a concrete confirmation of this commitment. 37 per cent of the Next Generation EU fund, for a total of 750 billion euros, will directly benefit the green transition.
Believing that decarbonising our economies is absolutely imperative doesn’t mean turning a blind eye to the complexities that this process entails. In light of the health emergency, the IMF has summed these up in straightforward terms. “Though (climate change, ed.) mitigation is likely to boost incomes in the long term by limiting damages and severe physical risks, the economic transformation it requires may lower growth during the transition, especially in countries heavily reliant on fossil fuel exports and in those with rapid economic and population growth”. Poland, Czechia, and Bulgaria all fall in the former category. In these countries, coal – the dirtiest of fossil fuels – is still the backbone of their energy mixes and supports the livelihood to tens of thousands of families.
From the outset, a key chapter in the Green Deal is dedicated to those areas that are lagging behind on the starting grid for the green transition. The Just Transition Mechanism promises to mobilise at least 150 billion euros to convert companies, build infrastructure, offer training opportunities and jobs, and much more, “to make sure no one is left behind,” therefore ensuring that sustainable development and social inclusion are one and the same.
The funding will be divided into three routes. The first is the Just Transition Fund with a budget of 40 billion euros. 10 of these will come from the EU budget and the remainder from the European recovery tool. For every euro received from the EU budget, each member state will have to supply between 1.5 and 3 euros of those received from other EU programmes (the European Regional Development Fund and European Social Fund +), on top of a co-financing fee. This will have a multiplying effect that increases the fund’s total financial scope to between 89 and 107 billion euros.
The second mechanism is InvestEU, the programme that aims to support investment and access to funding, with guarantees provided by the EU budget. It will be deployed between 2021 and 2027, mobilising 650 billion euros, of which 1.8 billion will be dedicated to the Just Transition goals.
Finally, the European Investment Bank will also come into play. Thanks to a 1.5 billion euros injection from the EU budget, it will provide loans totalling 10 billion euros to public bodies. Here too the aim is to generate a virtuous cycle that creates favourable conditions for a further 25-30 billion euros in public investments.
Those who wish to benefit from these opportunities will find information, resources and updates on the Just Transition Platform, a portal provided by the Commission.
Timmermans has stressed that the years ahead of us represent an opportunity that can’t be missed. The European Union will invest a total of 1.8 trillion euros to put the economy, which is currently suffering due to the health emergency, back on its feet. This is an unprecedented sum. What good would it do to use this money to try and maintain a status quo that has proven its limitations time and time again?
In his impassioned speech, Timmermans referred to a concept that is dear to economists: stranded assets. Building a fossil fuel power plant, for example, might (wrongly) seem like a shortcut that can revitalise the economy by creating jobs. However, due to the adoption of new environmental regulations and stricter tax systems, as well as the technological evolution that is making renewables increasingly cheaper, soon fossil fuel energy will be pushed off the market, losing its monetary value. Meanwhile, however, it will have contributed to global warming, pollution and environmental degradation.
“The money we use now is money borrowed from the next generations,” Timmermans concluded. “Spending it on their future, instead of our past, is a moral imperative and a matter of economic good sense. We have no choice”.
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