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GREEN DEAL – EUROPE TO DEFINE ITS RESPONSE TO COVID-19 PANDEMIC
The European Commission (“Commission”) has an ambition to make Europe the first climate-neutral continent by 2050. The President of the Commission, Ursula von der Leyen has made climate change a top priority in her “Agenda for Europe” by proposing a policy package called “Green Deal” including proposals to increase carbon taxes, invest more heavily in sustainable business, reduce pollution, and increase protection for Europe’s wilderness, national parks, and green spaces.
The outbreak of the Covid-19 plunged almost all the EU member states into a recession. While several member states and the Commission consider putting the Green Deal into the heart of the post-coronavirus recovery, others urge the EU to suspend the Green Deal and focus on the coronavirus instead. Time will show whether EU will stick with objectives of the Green Deal in recovery plans when addressing the Covid-19 outbreak.
a. Key Points of the Project
Ursula von der Leyen, who declared that the EU would lead the fight against “the existential threat” of the climate crisis, announced the European Green Deal Project in December 2019. She addressed the European Parliament by stressing the need to reconcile the economy with the planet and described the climate policy as Europe’s new growth strategy. Within the said project, there are a many measures likely to affect the continent not only economically but also socially.
First target of the project is to create “Climate Neutral Europe” by firstly increasing the EU’s greenhouse gas emission reduction target for 2030 to at least 50% and towards 55% of 1990 levels, then becoming carbon neutral by 2050.
In this regard, EU’s key tool for reducing greenhouse gas emissions, EU’s emission trading system (“ETS”), will be revised. The ETS is a Europe-wide cap and trade scheme putting price on carbon emissions which was launched in 2005. By creating supply and demand for emission allowances, the ETS establishes a market price for greenhouse gas emissions for many economic sectors with the exception of some key sectors such as road transportation, construction, international aviation and shipping sectors. Although most of the economists agree that putting a price on carbon emissions is a must for de-carbonization, it is quite difficult to encourage clean technologies by pricing only certain part of the total emission through the ETS with relatively low prices. Considering the exemptions granted to some carbon intensive sectors, it seems challenging for the EU to reach its target in fighting against climate change. Accordingly, within the project, it is planned to extend such scheme to new sectors such as international aviation, shipping and construction sectors, in order to reduce emissions in sectors currently outside the ETS. Nonetheless, international aviation and shipping remain critical for policymakers as it requires a greater level of engagement.
Another target of the Commission within the project is the transport sector. According to the European Environment Agency, in 2017, 27% of total EU-28 greenhouse gas emissions came from the transport sector and CO2 emissions from transport increased by 2.2 % compared with 2016, while such ratio decreased only by 0.7% in 2018. Accordingly, alternatively powered vehicles, notably electric vehicles in public and private transport will be further promoted across Europe. The Commission’s net zero greenhouse gas emission target will also be supported by the European Parliament by establishing a legally binding “Climate Law” which was proposed in March 2020.With the Climate Law, member states along with the EU institutions will be bound to take necessary actions to meet the target and several measures will also be implemented to keep track of progress. However, due to Covid-19 outbreak, the proposal has been put on hold and on-going consultations regarding the proposal have been also postponed.
Another key component of von der Leyen’s agenda is to review the Renewable Energy Directive II (“RED II”). The first Renewable Energy Directive (“RED”) had established an overall target for the production and promotion of energy from renewable sources within the EU by requiring member states to fulfill such target by 2020 – to be achieved through the attainment of individual national targets. All member states were expected to ensure that at least 10% of their transport fuels come from renewable sources by 2020. In November 2016, the Commission published its ‘Clean Energy for all Europeans’ initiative. As part of this package, in December 2018, the revised renewable energy directive 2018/2001/EU, RED II, entered into force to replace RED aimed at keeping the EU as a global leader in renewables and, more broadly, helping the EU to meet its emissions reduction commitments under the Paris Agreement. In RED II, the overall EU target for Renewable Energy Sources consumption by 2030 has been raised to 32%. Also, according to transport sub-target, member states must require fuel suppliers to supply a minimum of 14% of the energy consumed in road and rail transport by 2030 as renewable energy. The Green Deal targets to achieve almost zero greenhouse gas emission within EU by 2050.
Additionally, von der Leyen came up with a plan to impose a carbon border tax, also known as the carbon border adjustment which imposes a fee on products that will be imported from other counties based on the emissions emitted during the production processes of these imported products. The scheme, according to the European Green Deal Communication, would also be flexible so that imports from countries that implement carbon pricing same as those in Europe would be exempt from the carbon border tax. It is also worth noting that the reason why the Commission wants to extend the scope of the ETS and introduce the carbon border tax is to eliminate the risk of carbon leakage which reduces the effectiveness of the EU climate policy at the international level, as the current ETS system drives European firms to outsource their production resulting in the same emission level just outside the EU. Moreover, under EU regulations, steel, mining and cement are among the EU sectors that benefit from free carbon allowances until 2030, as they are deemed at risk of carbon leakage. However, with the new tax reform, such exemptions will be shortly revoked. Accordingly, the carbon border tax, if put into effect in the future is likely to have important effects on the production within the EU as well as exports from non-EU countries into the EU in the future.
A financial support mechanism will be also in place targeting precisely the most vulnerable regions and sectors. According to von der Leyen, the Commission has an ambition to mobilize €100 billion to help regions most heavily dependent on fossil fuels under the “Just Transition Mechanism” project. Accordingly, a technical assistance will be provided to such regions in order to help them to use systematically the funds while complying with the EU’s strict spending rules.
b. Possible Impacts of the Covid-19 Pandemic on the Green Deal
Despite the statements of some member states, namely Poland and Czech Republic, insisting on suspending the Green Deal in order to prioritize the health crisis, on 9 April 2020 the environment ministers of 13 member states publicly announced that “Europe must not forget about the persistent climate and ecological crisis when defining its response to the Covid-19 pandemic” which was subsequently supported by four other member states including France and Germany. Accordingly, the member states called on the Commission to promote sustainable growth and to put objectives of the Green Deal at the heart of the every recovery plan in order not to lose a track of environmental commitments when addressing the Covid-19 crisis. Such statement was also highly welcomed by the Commission since it shows the respect of the member states towards climate objectives and energy transition.
Moreover, considering the recent developments, nature has highly benefited from the downturn in economic activity including the reduction in greenhouse gas emissions across the world. Fatih Birol, executive director of the International Energy Agency, finds such opportunity as a golden ticket and stresses that governments should embrace such chance to put clean energy into their bailout packages. In this context, EU leaders showed their willingness to use the on-going crisis to advance climate action by signing the “a joint statement that the union remains committed to sustainable growth and the Commission by providing a public consultation on raising the EU’s climate target for 2030 in late March 2020.
Following the increasing support by the public and member states, the Commission has also decided to put forward a comprehensive plan to revise the EU’s 2030 climate target upwards in September, along with proposing an amendment of the recently proposed European Climate Law and later through sectoral legislative proposal. Accordingly, the European Council, in cooperation with the EU Commission, has put forward a “Roadmap For Recovery” on 21 April 2020 setting forth important principles and investment components to put the green transition in the heart of every national recovery plan across Europe not only for alignment with the goals of the European Green Deal but also due to its vital role in re-launching and modernizing the economy. However, with the oil prices dropping to their lowest level in history, it is expected especially for Eastern European countries, heavily dependent on fossil fuels, to stick with their pre-green deal policies and put priority on fossil fuels which may slow down the green transition across Europe. As the world continues to struggle into the unknown, it is too early to tell whether the Green Deal will be disrupted due to Covid-19 spread and only time will show how the EU will position itself in green transition.