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The EU, covid and recovery: The European Green Deal

Lori Thorlakson, University of Alberta

Crisis has often served as the midwife of European integration. For the EU this year, the convergence of covid-19, its attendant economic crisis, and climate emergency has facilitated two key developments. First, it has created an opportunity for the European Union to harness the post covid-19 economic recovery in the service of building a new, green economy through the European Green Deal. Second, the budget that serves as the vehicle to deliver this policy goal has itself ushered in some unexpected advances in European integration.

The European Green Deal has the goal of making Europe carbon neutral by 2050, achieved through approximately 1 trillion euros in both private and public investment. The plan is ambitious and wide-reaching, and, if successful, will allow Europe to provide sorely-needed international leadership on climate policy. It seeks to decouple economic growth from emissions with a plan that covers all sectors of the economy. The opportunity for the EU to use the pandemic recovery to restructure the economy toward green growth is intensified because it aligns with the start of a new Multiannual Financial Framework (MFF). This allows the Commission to use the 2021-2027 budget to support the dual goals of the green and digital transitions. At the July European Council summit the member states agreed on a budget of 1.8 trillion euros, consisting of a MFF of nearly 1.1 trillion, combined with a 750 billion euro special recovery facility, Next Generation EU (NGEU), funded by EU borrowing on the financial markets. This is in addition to the 540 billion euro recovery package agreed by the Council in April.

The 2014-2020 budget mainstreamed climate action by calling for 20 per cent of funds to be spend on climate-related measures. The new proposed budget increases this target, with 30 per cent of the budget earmarked for green spending. The impact of this will ultimately depend upon how effectively the ‘green strings’ on the deal will be able to bind spending. The budget promises to include green strings on new spending for both the MFF and the NGEU, although it is not clear how stringent or effective this will be. The EU missed an opportunity to attach green strings to April’s state aid package. More fundamentally, however, while there is an overall target of 30 percent of MFF and NGEU funds to be spent on climate, there is still an open question of what counts as green spending. A recent blog post by Bruegel argued that the Commission’s methodology is flawed, pointing to a Court of Auditors critique.

Beyond a green budget, the EU has legislative tools that will institutionalize its climate policy goals. A current legislative proposal to amend the European Climate Law (2018/1999) would submit every piece of EU legislation to a carbon neutrality test. The Climate Law follows in the footsteps of similar measures at the national level in several member states—especially the 2008 UK Climate Change Act (as amended in 2019), which enshrined a legally binding carbon budget. The EU has also called for a review of its 2030 targets and tools in June of 2021 to ensure that the legislation can achieve its objectives.

A key element of the Green Deal, and one that Canada should pay close attention to, is the Just Transition Mechanism (JTM) to target regions and sectors that face the heaviest burdens through energy transition. It includes financial support, technical assistance, risk sharing for investors, and transition plans. Within the JTM, the Just Transition Fund provides transition support for the most polluting and poorest regions. While the Just Transition Fund has been criticized for rewarding the holdouts to energy transition and those with the most carbon-intensive energy production, it is a politically necessary piece of the deal. One of the implementation risks facing a post-covid green recovery, as well as energy transition more generally, is regional and sectoral inequality. Regions, and their economies, may be impacted quite differently by the pandemic and have different degrees of need, and they may possess different capacities to rebuild. Securing initial and enduring political support, from both elites and the public, will also depend on being able to quell the concerns of high-carbon member states who fear they have the most to lose from energy transition.

The Green Deal is not without its critics. Some say that it is not sufficiently ambitious. The European Parliament wants to strengthen funding for green and digital transition, a greater role for grants to states, and is also unhappy with weak conditionality related to rule of law. The budget still needs the European Parliament’s approval, before final ratification by the end of the year. Budget negotiations with the Parliament are likely to strengthen, rather than weaken green provisions, although the EP may reserve their strongest bargaining effort for strengthening conditionality based on rule of law. For many environmentalists, the deal also does not go far enough: Greta Thunberg has called the deal ‘surrender’ as it calls for a carbon neutral and not carbon negative Europe in 2050.

For some member states, however, the Green Deal goes too far. While Poland supports an overall EU objective of carbon neutrality by 2050 it has not been able to commit to the plan’s implementation in Poland. The Polish deputy minister of State Assets has asked the EU to abolish the Emissions Trading System or exempt Poland from it. Czech Prime Minister Andrej Babiš said the EU should abandon the Green Deal to focus on the coronavirus. However, another threat to the long-term prospects of policy success comes from member states who are opposed to large EU budgets and redistribution, rather than energy transition. The European Council agreed in July to reduce the pot of money in the Just Transition Fund from 40 billion to 17.5 billion euro to placate the so-called ‘frugal four’, the governments of the Netherlands, Austria, Sweden and Denmark. This move may undermine the effectiveness of the implementation of the Green Deal program.

This budget heralds some significant new developments for European integration. One remarkable, and much commented upon, development has been the fact that the 750 billion euro short term emergency recovery package is to be funded by the EU borrowing on the financial markets—a measure which steps close to, but doesn’t quite cross the line to the mutualisation of debt, prohibited by the treaties. The urgency of the combined public health and economic crisis has overcome the traditional reservations of some member states—especially Germany—to take this heavily symbolic step.

Another aspect of the budget with implications for European integration is its introduction of new forms of own resources for the European Union, including 20 per cent of revenues from the Emissions Trading System and revenues from a new tax on non-recycled plastic from 2021. This is significant because it increases the EU’s supranational budgetary autonomy and, consequently, its policy autonomy. The EU acquiring, or increasing, its own resources has historically been a contentious issue because it symbolized the loss of sovereignty for member states, and the consolidation of supranational fiscal and political power. In 1965, the proposal for community own resources prompted the French to walk out of the Council in protests, leading to the Empty Chair Crisis and a compromise that preserved a de facto national veto.

This time around, other forces have generated pressure to increase the EU’s own resources. The EU has to make up for the predicted budgetary shortfall that the departure of the UK will create, estimated at about 10 billion euros annually. As a result, when the plastic tax was proposed in October 2019, it received broad political support from member states, after addressing the potential differential impact of the tax on member states in Eastern Europe with lower recycling rates. A more pathbreaking form of own-resources is in the pipeline: the budget calls for a carbon border tax to be applied by 2023. The tax would be applied to goods produced using processes that generate higher emissions than EU production would allow. The impact of such as measure is that it has the power to reduce emissions with the EU’s trading partners. The EU is also proposing a financial transaction tax and a digital tax, but these face difficult political hurdles.

Despite its imperfections, the Green Deal is still one of the most promising policy developments on the horizon in the global response to climate change. It is also an ideal policy challenge for the EU to focus its efforts on: the nature of the problem is complex, long-term and inescapably cross-border in its scope. It is also an ideal candidate for a policy process with strong technocratic leanings. The Commission can take action where more politically exposed national leaders face constraints. While the policy initiative is responsive to public opinion in Europe where there is growing support for climate action, a recent IPSOS poll indicates that support for prioritizing climate in economic recovery efforts in Germany, Spain and France nevertheless falls short of the world average. In Germany, it secures less support than in Canada. Propelled by the European Commission, the Green Deal and its supporting budget are taking concrete shape, even its lukewarm momentum of public opinion behind it, where elsewhere, such as in Canada, higher public support has not spurred a similar development. The horse trading and compromise that are hallmarks of EU distributive policy have watered down but not destroyed the policy. On the contrary, they have secured the necessary political compromises for its implementation while at the same time strengthening supranationalism, one of the most promising motors of climate policy in Europe.


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