HOW MANY SHADES OF GREEN?
Last May 27th the European Commission presented the proposal for an EU Recovery Plan“ to help repair the economic and social damage brought by the coronavirus pandemic, kick-start European recovery, and protect and create jobs” The plan — called “Next Generation EU“— will be deployed over the period 2021-2024, and was presented together with the standard seven-year budget proposal — the EU’s Multiannual Financial Framework (MFF) — totaling €1.1 trillion for the years 2021 to 2027. The “Next Generation EU” will be a one-off emergency instrument, put in place for a temporary period and used exclusively for crisis response and recovery measures. It will boost the EU budget with new financing raised on the financial markets. The funds raised will be funneled through EU programs to underpin the immediate measures needed to overcome the economic and social consequences of the pandemic, with an end date by 31 December 2024.
The proposed plan would provide €500 billion in grants to countries hit by the COVID19 pandemic and make another €250 billion available as loans. The Commission would borrow on the financial markets using national commitments to the EU budget as a guarantee, by increasing the EU’s own resources to 2% of the EU gross national income (GNI), up from 1.2% currently. While most of the commitments for this instrument would be made in 2021-2024, actual pay-out would spread over more years. However, EU debt is a liability for taxpayers in EU countries and therefore indirectly for national budgets. To establish it, countries will need to give up control over some spending and some revenues. There will be tight political oversight on how EU recovery funds will be spent. Any request to tap into the fund must be signed off by the Commission and the Council. Loans and grants distributed to EU member states under the recovery plan will need to support “investments and reforms” in the applicant country, with green aspects to be included.
The Commission also flagged different options to temporarily increase the EU’s own resources, that is the direct sources of the EU’s funding, including the possibility of creating new revenue streams for the EU budget, such as a proposed digital tax, a plastic tax, or a carbon border tax. While the European Parliament has spoken out in favor of expanding the means to increase the EU’s own resources, and insisted it should have its say concerning decisions on the recovery plan, it is not obvious that the 27 Member States can achieve unanimity on this issue.
Today, however, we would like to turn our attention to that part of the Commission “Next Generation EU” proposal that concerns the “green transition” measures included in the new recovery plan. These, according to the Commission, will be implemented in accordance with the objectives of the European Green Deal, which remains the basis of the Commission’s ambitious political programme. The recovery plan proposes setting aside 25% of EU spending for climate-friendly expenditure, which will apply throughout the EU’s updated budget proposal and green recovery initiatives, such as supporting the sustainable renovation of buildings, the further development of the renewable energy industry and clean mobility, as well as the launch of a EU’s clean hydrogen platform.
The Commission estimate the investment needs for delivering the green transition amount to at least €470bn per year (€940bn over the years 2021-2022). The measures cover not only the current 2030 climate and energy targets (€240bn annual investment) but also investment needs to deliver on Europe’s wider transport infrastructure (€100bn per year) and other environmental objectives, such as improving waste-water and waste management (€130bn per year).
However, the Commission warns that several environmental investment areas are not considered in the plan and will have to be further calculated. Therefore, it is not possible to quantify all green investment needs at the current stage, making the above estimate a conservative benchmark for adequate green investment levels
Last January, when proposing the EU’s Investment Plan to make the EU the first climate-neutral bloc in the world by 2050, the Commission claimed their proposal would lead to at least €1 trillion of investments over ten years, unleashing a ‘green investment wave’ .The proposal assumed a ‘green investment gap’ of €260 billion per year by 2030. But these figures referred to the current EU greenhouse gas (GHG) emissions reduction target of 40% by 2030 relative to 1990 levels. In the context of the European Green Deal, the Commission is expected to further deepen these targets, slashing GHG emissions by 50-55% by 2030. This will clearly imply higher investment needs on top of the €470bn per year assumed by the Recovery Plan. Therefore, the estimates of the necessary investments to keep the EU on track to achieve the “green transition” in a post-COVID19 are not adequately covered by the recovery plan.
The standard EU’s Multiannual Financial Framework (MFF) for 2021-2027 and the recovery plan will be discussed by Member states and the European parliament this summer, with the aim to adopt the EU’s budget in December, as it requires unanimous approval. Debates on the EU’s seven-year MFF dragged on for more than two years after the Commission made its first proposal without reaching an agreement. Many contentious issues led to a dead end in negotiations. While these disputes remain today, the coronavirus pandemic has completely changed the economic and social outlook as the EU economy is expected to shrink sharply in 2020, causing large losses in income for households and businesses, particularly in those regions most affected by the pandemic. Against this background, the negotiations in the Council are going to be very difficult. Indeed, the governments of the so-called “frugal four” group – Austria, Denmark, the Netherlands and Sweden – appear to be immovable in their opposition to both an increase in the EU’s budget and the use of grants in the recovery plan. Reaching a consensus with each of these countries will be necessary in order to implement the recovery plan in conjunction with the MFF from 2021, a date that already seems far enough away to undertake the economic and social rebirth hoped for by the Commission.
An agreement will eventually be reached, including through those negotiating mechanisms between Member States, such as the rebates, that remain almost unknown to ordinary citizens. Then will we be able to judge whether the result will be too little and too late to help repair the economic and social damage brought by the coronavirus pandemic, kick-start European green recovery, and protect and create jobs.