What started as a climate agenda can now help the EU overcome its existential challenges.
By launching the European Green Deal five years ago, the European Union established itself as the global leader in climate action. However, as the effects and costs of global warming continue to increase, the need to build a sustainable economy is even more important today. Furthermore, the natural gas crisis which followed Russia’s invasion of Ukraine highlights the imperatives of accelerating decarbonization to secure the bloc’s energy supplies, reducing its electricity costs, as well as strengthening of social cohesion. What started as a climate agenda can now help the EU overcome its existential challenges.
To achieve these targets, the EU must implement the Fit to Target 55 legislative package, which plans to reduce greenhouse gas (GHG) emissions by at least 55% by 2030, and it must quickly adopt the proposed target of reducing these emissions by 90% by 2040. Going back is not an option, as it would expose the bloc to even more severe climate shocks, while putting more harm its competitiveness, its security and its global credibility.
The road ahead towards carbon neutrality will obviously not be easy. As the energy transition accelerates, a number of equity questions will arise, including who will bear the costs of decarbonizing the buildings, transport and agriculture sectors. This transition will perhaps also test the cohesion of the EU, with the emergence of green industries in its peripheral regions likely to reconfigure the balance of power within the bloc. At the global level, it will raise concerns about preserving a level playing field vis-à-vis states outside the EU whose decarbonization will not follow the same pace.
Achieving a clean, fair and competitive transition requires a new Green Industrial Pact, which promotes both decarbonization and sustainable industrial growth and development. Such an integrated set of policies, which European Commission President Ursula von der Leyen has pledged to promote during the first 100 days of her second term, would strengthen support for the ecological transition, making it politically acceptable.
A European industrial strategy must create conditions conducive to investment. This means firstly making renewable energy more affordable, and encouraging its deployment by implementing tax credits, reforming commodity markets, and more. It will also be necessary to reduce bureaucratic red tape (without compromising climate policy), for example by speeding up authorizations as well as improving access to finance and markets, in order to mobilize the resources that clean technology manufacturers need to develop, and energy-intensive industries to modernize.
Fortunately, there are many ways to boost green investment, including integrating a public investment rule into the new EU budgetary framework, as well as increasing funding from the European Investment Bank, so that it can maximize its ability to reduce the risks associated with clean energy investments. The EU could also make better use of its common budget by creating a new European Competitiveness Fund – which von der Leyen has also promised to create – to boost innovation, as well as conditioning disbursements on the implementation of energy and national plans by Member States. Furthermore, a union of savings and investments would contribute to a more solid European financial market.
This strategy could use public procurement to create an internal market for clean technologies and innovative products made in Europe. Of course, as the management of resources such as water becomes increasingly important, measures towards the circular economy and environmental protection are also expected to play a major role.
It is also necessary to think about how to integrate the energy transition and the digital transition, as well as overcoming the trade-offs between the two: data centers, for example, require a lot of energy, but digital technologies will be essential to efficient management of the future energy system.
Finally, it is essential that workers are trained for the jobs of tomorrow, in order to reduce the social impact of the energy transition, particularly in regions with carbon-intensive industries.
To address the issues specific to each sector, it would be necessary for the new Industrial Pact to subsidize strategic supply chains within technological areas in which the EU enjoys a comparative advantage, while taking into account the trade-offs between decarbonization, competitiveness and security. A maximum degree of “Europeanization” would be necessary for this.
In line with the recommendations of Mario Draghi’s recent report on European competitiveness, it will be crucial to channel public funding towards important projects of common European interest (IPCEI), and to develop the use of instruments such as the Innovation Fund. The pioneering initiatives of the European Hydrogen Bank – including its proposal for auctions as a service, allowing Member States to top up allocations from the EU Innovation Fund to support more projects, or “carbon contracts for difference”, allowing companies to protect themselves against future price fluctuations – could serve as a model here.
To ensure that scarce resources are allocated to IPCEIs, the European Competitiveness Fund should be designed to combine new and existing financial instruments. Furthermore, the new EU budgetary framework should give preferential treatment to national support for projects, and efforts should be made to find funding from revenues generated by the European Emissions Trading System as well as than through carbon contracts for the difference between Member States. A large-scale industrial decarbonization plan will only be credible if it includes concrete measures to reduce the cost of capital as well as provide sufficient resources.
Like the EU’s carbon border adjustment mechanism and its deforestation legislation, the Green Industrial Deal will have global repercussions. To ease geopolitical tensions and diversify its sources of raw materials as well as critical components, the bloc could develop green trade and investment partnerships with strategic third countries. Working with governments outside the EU around green energy targets would be a big step in strengthening European competitiveness and security.
However, these green trade and investment partnerships can only exist if two conditions are met. Firstly, the ‘Team Europe approach’, where Member States join forces in external action, must be developed on a larger scale in order to strengthen the EU’s influence in third countries. Second, it is necessary that these partnerships be coordinated at the executive vice president level, to ensure overall policy coherence and impact.
The political viability of the European Green Deal depends on the EU implementing a set of policies combining decarbonization efforts with measures to strengthen competitiveness and social cohesion. The implementation of an ambitious Green Industrial Pact must therefore be the main task of the new European Commission.
Jean Pisani-Ferry, senior member of the Brussels think tank Bruegel, and non-permanent senior member of the Peterson Institute for International Economics, is professor at Sciences Po. Simone Tagliapietra, senior member of the Brussels think tank Bruegel, is professor at the School of Transnational Governance from the European University Institute. Laurence Tubiana, former French ambassador in the negotiations relating to the United Nations Framework Convention on Climate Change, is CEO of the European Climate Foundation, and professor at the École Normale Supérieure.
Copyright: Project Syndicate, 2024.
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