The new European Commission has made a commitment: to make the European Union carbon neutral by 2050. But how will this goal, announced by EC President Ursula von der Leyen in her inauguration speech in December, actually be achieved? Now the EU is entering the most difficult phase, that of translating words into action. Without opening Pandora’s box, there is the big question of the flexibility of the Fiscal Pact: if the will to achieve emissions neutrality is really there, climate investment could be deducted from the calculation of the 3% deficit ceiling, but so far nobody is talking about that.
On Tuesday, the European Commission presented the Green Deal financing program for the next five years (within the seven-year multiannual budget, 2021-27, currently under discussion) to the Parliament. The EC wants to respond to the three challenges it has to overcome: the amount of funding (how much money will be allocated to the energy transition?); the investment challenge; as there is a “barrier” due to the perception of risk, often considered too high, which is holding back investments; and the cohesion challenge, because not all European regions have equal needs when it comes to the energy transition.
A study focused on the year 2030 has estimated that the additional investment needed to achieve the objective of a reduction in emissions of around 40% over the next 10 years is €260 billion per year. That target would still be below the COP21 commitment to keep global warming below 1.5°C, which would require a reduction in greenhouse gas emissions of above 50%, in fact closer to 65%.
Now, the Commission is piling on everything it can (together with the hopes of achieving a leverage effect) to reach the sum of €1 trillion for the climate over the next 10 years (i.e. €100 billion per year). This is a large sum, but it isn’t higher than the one already proposed by the last Commission’s “Juncker Plan.”
The EU budget (currently being debated among many competing interests) is set to dedicate 25% of its funds to the energy transition. A quarter of the multi-annual 2021-27 budget means approximately €500 billion, which will come from a transfer of 40% from the Cohesion Fund and another 40% from the CAP (agricultural policy) funds, plus other funds from specific projects (such as LIFE). There should also be more money available for research dedicated to the climate transition.
Adding an extra €100 billion from co-financing tied to the cohesion policy, the Commission arrived at a figure of €600 billion. Then, it added the numbers from the successor of the Juncker Plan, the Invest Europe Plan, in which EU money will serve as a guarantee to reduce the risks associated with this type of investment, thus attracting private capital. In the best case, this would amount to around €300 billion, as a result of the “leverage effect,” with the participation of the EIB and other financial institutions.
The final part of the total funding of €1 trillion is set to come from the new “Just Transition Fund” proposed on Tuesday, endowed with €7.5 billion (with a “leverage” mechanism: for every euro of EU funding, the region concerned will have to invest €1.5, and between 30% and 70% of the project costs will be funded at the national level). This addition is an attempt to convince the more reticent countries — for instance, Poland, which refused to approve the Green Deal back in December.
Now, the race for “eligibility” is on: which regions will be eligible to receive funding? It will have to be those with the highest CO2 emissions, with economic activities that have an important impact on local employment and where the economy is heavily dependent on coal. In February-March, a “taxonomy” will be decided to determine the eligibility criteria, and Poland, the Czech Republic and also certain areas of Germany are expected to be the best placed to obtain conversion funding (for the redevelopment of local areas, training for workers, etc.). In Italy, the Taranto region with its ILVA plant could also qualify.
We can expect a tug-of-war between those who will be net contributors and those who will be the beneficiaries: among other issues, there may be a clash between the need to access the Just Transition Fund and the penalties on account of the violations of the rule of law (particularly in Poland and Hungary). Furthermore, although the EU will not invest in nuclear energy, it will be necessary to wait until the end of the year to see if nuclear power will be considered “green” (or at least green-ish), as France, the Czech Republic and a few other countries want (since Paris in particular wants to use it to offset its calculations of CO2 emissions).
