16/07/2020

Europe: Towards a Green Recovery?

Three questions to Alexandre Robinet-Borgomano

Senior Fellow - Germany

On June 25, Institut Montaigne and the Genshagen Foundation brought together leading European personalities to discuss the role of climate in Europe's recovery plans. Yannick Jadot, Member of the European Parliament (EELV), Franziska Brantner, Member of the Bundestag (Bündnis 90-Die Grünen), Dr. Carsten Rolle, representative of the German Federation of Industry, Christian Gollier, climate economist, and Joanna Pandera, President of the Warsaw Energii Forum, discussed a possible reconsideration of the "Green Deal", in view of the crisis. How can the recovery be drawn up, in line with a more sustainable and resilient European economic model? And what would be the conditions needed for a genuine European green recovery? We asked three questions to Alexandre Robinet-Borgomano, Head of Europe Program at Institut Montaigne.

The Covid-19 crisis caused an unprecedented suspension of economic activity and the temporary interruption of particularly polluting sectors. While the health crisis seemed to have a positive impact on the environment, the need to revive the European economy could lead States to question past climate commitments. How does the coronavirus crisis play into the climate issue?

The coronavirus crisis is an unprecedented challenge for the European economy. The lockdown measures that were imposed, the slow recovery of the economy and the uncertainties that still hang over certain sectors, especially tourism and aeronautics, all lead to particularly gloomy economic forecasts. The European Commission, which published its summer economic forecast at the beginning of June, is now expecting a GDP contraction of around 8.3% in Europe, 2020. The need to promote growth and to safeguard jobs could mean that the climate objectives defined for Europe by the "Green Deal", an agenda fixed by the European Commission to make Europe the first carbon-neutral continent by 2050, could be called into question.

During the crisis, the Green Deal has come under many attacks. In mid-March, Czech Prime Minister Andrej Babis called for a postponement of the Green Deal in order to let the European Union focus on the fight against the virus. The automotive industry, through the powerful European Automobile Manufacturers’ Association (ACEA), tried to obtain a postponement of European rules on CO2 emissions in early April. There appears to be room for a certain opportunism, but the crisis has also shown the inadequacies of the climate modelling software on which the European Union was relying until now.

The EU Emissions Trading Scheme (ETS) is a pillar of the Union's climate change policy. As Christian Gollier shows, the drop in demand for emission allowances and the collapse of prices during the crisis have revealed the limits of this system. They have also revealed the need to reform it, notably by introducing a floor price for CO2, as well as a more ambitious carbon price at the European level.

For the first time, Member States are agreeing to take on joint debt in order to relaunch the European economy, granting loans and subsidies to the economic sectors and regions most affected by the crisis.

If certain adaptations of climate policy seem necessary, the economic consequences of the crisis should not result in a suspension of the Green Deal, quite the contrary. Green MEP Yannick Jadot is convinced that this crisis is accelerating environmental awareness among the population, fostering the emergence of a new, more sustainable and resilient European economic model. In his opinion, two European instruments should play a key role in promoting this new model: a European industrial policy geared towards supporting green technologies, and the renewal of trade policy, marked by the introduction of a carbon tax at the EU's borders.

The European Commission recently presented a proposal for a €750 billion European Recovery Fund to support the European economy, and to accompany its transformation towards a more digital and sustainable development model. What would be the conditions needed for a genuine green recovery of Europe?

The European recovery plan presented by the Commission at the end of May represents a historical turning point in the construction of Europe. For the first time, Member States are agreeing to take on joint debt in order to relaunch the European economy, granting loans and subsidies to the economic sectors and regions most affected by the crisis. This recovery fund, associated with the next multiannual financial framework, is currently being negotiated, and will be put forward at the European Summit of July 17-18.

Called "Next Generation EU", this recovery plan aims both to revive a down-to-earth European economy and to invest in the future, in order to accompany the transformation of our economies towards a greener development model. As announced by the President of the Commission, Ursula Von der Leyen, the European Green Deal is the cornerstone of this recovery plan, which contains a number of major emblematic projects: renovations of buildings and infrastructures; the launch of renewable energy projects, particularly in wind and solar energy, and the creation of a hydrogen economy in Europe. It also includes the introduction of cleaner transport, including the installation of one million charging points for electric vehicles, and increased support for rail transportation.

This recovery plan also aims to increase the "Just Transition Fund" from €7.5 billion to €40 billion, in order to support the greening of certain regions and help businesses create new economic prospects in terms of growth and jobs. Joanna Pandera, head of a think tank in Warsaw specializing in energy issues, recalls the need to assist the regions most affected by this transition by supporting the creation of "flagship initiatives", notably in Poland's mining regions.

Discussions on this recovery plan focus mainly on the question of the overall cost of the operation, and the respective share of loans and grants. The real question now concerns the nature of the European projects that this recovery plan could finance.

In a recent study entitled How to spend it? A Proposal for a European Covid-19 Recovery Programme, the French Economic Observatory (OFCE) and the Vienna Institute for International Economic Studies (WIIW) proposed two concrete initiatives for a green European recovery. One of them is the creation of the Ultra-Rapid-Train, a European high-speed rail network, with four routes that reduce journey times between EU capitals and regions. The other is the establishment of a fund to accelerate the achievement of a smart and integrated electricity grid, transmitting 100% renewable energy.

Discussions on this recovery plan focus mainly on the question of the overall cost of the operation, and the respective share of loans and grants.

The Commission's objective is to ensure that the national recovery plans include an environmental dimension, making the grants conditional on compliance with environmental criteria. This new conditionality, supported in particular by MEP Franziska Brantner, spokeswoman for the Greens in the Bundestag, mainly involves two mechanisms. In addition to the applicability of the principle of "do-no-harm", which excludes investments in fossil fuels, an even more ambitious conditionality could involve earmarking part of these funds for certain key sectors in line with the Commission's priorities, such as building renovation, offshore wind energy or hydrogen production. More significantly, a review of European competition policy could lead to a relaxation of the (currently suspended) state aid control regime, allowing European states to subsidize companies in sectors deemed strategic for the ecological transition. We are thus witnessing a real transformation at the European level: the dogma of free competition is now being replaced by that of climate protection.

At the beginning of June, Germany presented a national recovery plan of €130 billion, with a strong focus on climate protection. In what way is this likely to inspire France's recovery plan, which it should present at the beginning of the new academic year?

The climate ambition of the German recovery plan is incontestable, and has been analyzed in detail by the German think tank Agora Energiewende. Thus, in the mobility sector - in contrast to the measures taken during the 2008 economic crisis - no bonus has been granted for the acquisition of polluting vehicles. The German State will also double the Environmental Bonus paid for the purchase of an electric vehicle. This plan also presents spectacular support for the development of a German hydrogen industry, more specifically green hydrogen, produced by electrolysis from renewable electricity. Germany has invested nearly €9 billion euros for the development of this technology. On the other hand however, the building sector appears to be on the sidelines of the recovery plan, with a budget of €2 billion for the energy renovation of existing buildings.

The example of the German recovery plan is certainly interesting, but let’s remember that Germany’s economic and social context is not quite the same as that of France, who is only just exiting the Yellow Vests crisis, and facing a deeper economic recession. France’s objective is to set up "green" recovery plans that do not undermine household purchasing power. It therefore need not and could not copy the German recovery plan. However, as Carsten Rolle, Director of the Climate and Energy Department of the German Federation of Industry (BDI), reminds us, better coordination between the two countries is necessary for European cooperation in key sectors such as the hydrogen economy or offshore wind energy.

The challenge for the French government is to now identify the most useful levers for a new growth model or, as President Emmanuel Macron put it, "to build a new world with a lower carbon footprint, one based on prevention and sustainability, so that we can cope with the crises our world has yet to face". Europe's resilience to crises will be at the heart of the Genshagen Forum, to be held in Germany in June 2021.

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Europe: Towards a Green Recovery?

Three questions to Alexandre Robinet-Borgomano

The European Commission recently presented a proposal for a €750 billion European Recovery Fund to support the European economy, and to accompany its transformation towards a more digital and sustainable development model. What would be the conditions needed for a genuine green recovery of Europe?

At the beginning of June, Germany presented a national recovery plan of €130 billion, with a strong focus on climate protection. In what way is this likely to inspire France's recovery plan, which it should present at the beginning of the new academic year?