The ambitious climate mission led by Ursula von der Leyen is starting to gather steam. Europe wants to be the front-runner in climate friendly industries and clean technologies. The policy package comprises of measures to tackle climate and environmental-related challenges through a resource-efficient and competitive economy. The overarching objective of this European project is to become the first carbon neutral continent by 2050 all whilst being the second largest consumer market globally. In order to attain this goal, by 2030 GHG emissions need to be cut by 50-55% of 1990 levels, the figure previously stood at 40%.
These targets are expected to be enforced into European law in March 2020. Total emissions are already falling, emissions reduced by 22% between 1990 and 2018. The total investment plan foresees at least €1 trillion of investment over the next ten years. Compared with the proposed Green New Deal of the United States, the planned rate of decarbonisation of the economy is lower, with the EU aiming to become net-zero over three decades instead of within ten years.
The new policy will have implications for all sectors of industry throughout Europe. It comes as no surprise that the largest contributor to GHG emissions on the continent is caused by the production and use of energy, accounting for 75% of total emissions. Despite the ongoing transition of many energy companies to become more renewable, the decarbonisation of the sector is thought to need further stimulus. A plan for “smart sector integration” will incorporate the electricity, gas and heating sectors into one system. This will be tied in with new initiatives supporting renewably sourced energy, with a central focus placed upon offshore wind. The power sector has been steadily shifting towards renewable sources. The deal stresses upon the importance of clean energy and the ongoing research to find the least expensive green alternative compared to the current polluting energy sector. The current target is that by 2030, 32% of the power generated in the EU should be green. The transition has been gradual, however, it is of note that 11 countries in the bloc have already surpassed this threshold. Many governments have passed laws such as the German Erneuerbare-Energien-Gesetz Act with the aim to speed up the shift towards being independent renewable energy producers.
Carbon neutrality would require a reduction of 90% in transport emissions. The segment accounts for 27% (including aviation and shipping) of total GHG emissions in Europe. Road, rail, aviation, and waterborne transport will all have to contribute to the reduction. The implementation of a smart mobility program is set to encourage more research surrounding alternative transport fuels. By 2025, it is estimated that one million public charging points will be needed for 13 million zero emission vehicles. In terms of the transport infrastructure, large investments are needed to increase efficiency and capacity of railways and inland waterways. A substantial part of the 75% of inland freight transported on roads are needed to shift to these alternative methods. Furthermore, new smart systems to regulate traffic and more stringent air pollutant emissions standards are set to be rolled out across urban areas. The bloc is expected to roll out new rules regarding maritime sector, with a proposed ban on large polluting ships from entering European ports. This would require companies to innovate rapidly as 53% of EU imports and 48% of EU exports currently travel by sea.
Circular economy and Waste
Another key element of the package is the circular economy action plan which will be submitted in March 2020. Local economies are still very linear with only 12% of European industry uses recycled materials. As global resource use is expected to double in the next 40 years, driven by Asian consumerism, a truly circular product cycle in Europe would pave the way for other countries to follow suit. The push will have to be a significant one, with around 40% of EU household waste currently recycled, increased awareness surrounding the importance of waste management is required to reach a truly circular cycle. Waste recycling figures range considerably among member states, with Germanic countries averaging 60%, Scandinavians around 40% and eastern Europe a mere 10%.> The immense disparity among countries will make it difficult to attain the current 2020 target of 50% of municipal waste should be recycled. Despite the low levels, the directive will offer European enterprises opportunities to find ways to reduce waste, which is further incentivised by developing countries mostly in Asia who no longer accept collecting foreign waste. New legislation and targets for tackling excessive use of packaging and waste generation, will build upon the ambitious targets set by the EU’s Circular Economy Package last year, which included a target to recycle 60 per cent of all waste by 2030. Further waste management reforms are expected to require that all packaging on the EU market is reusable or recyclable by 2030, and the development of a regulatory framework for biodegradable and bio-based plastics.
A housing renovation program, aimed at reducing the energy consumption of buildings, will also be a so called “flagship” part of the deal. In order to attain a decarbonised economy, the renovation of buildings is a key element. The sector currently accounts for 40% of total energy usage and 36% of Co2 emissions of the EU, leading it to be one of the largest contributors of GHG emissions. About a third of the EU’s buildings are over 50 years old and almost three-quarters are energy-inefficient. According to the EU, only 0.4 percent to 1.2 percent of building stock is renovated each year per country. In order to attain complete decarbonisation by 2050, 97% of the 200 million buildings in the EU would have to be upgraded in the next 30 years. This would require the renovation rate to be between 2.5 to 6 times the current figure. Barriers currently preventing consumers to renovate and impose the necessary improvements are chiefly economic. New financing models, such as green mortgages and loans, are expected to be one of the catalysts for the rapid change. The significant increase in renovation rates will require the construction sector to triple its productivity and radically innovate the construction process, triggering economic stimulus in a sector which accounts for 10% of Europe’s GDP. One of the problems facing this mammoth task is the environmental impact of Europe’s most widely used construction material, cement. Development of a sustainable alternative has been underway for a significant amount of time, with certain producers reducing their carbon footprints by a factor of 5.
Agriculture accounts for 11% of all EU emissions, this figure raises to 25% when the transport and other food related activities are factored in. Reviewing the Common Agricultural Policy is seen as critical if there is to be a significant improvement in the value chain. In order to improve the health of Europeans, the deal would introduce rules that would significantly reduce the use and risk of pesticides and fertilisers. Consumer co-operatives are at the forefront of the Farm to Fork Strategy which aims to maximise efficiency throughout operations. Reducing food waste has been and continues to be the focus of European Coop members’ campaigns designed to raise awareness among consumers of the need to change consumption patterns. This in turn will contribute to achieving a circular economy within the sector, thereby reducing the environmental implications stemmed by the food processing and retail sector.
Through the imposition of a carbon border tax, this will shield many high energy European industries against cheaper imports from countries with less strict climate policies. The implementation of the border adjustment mechanism will be viewed as an incentive for other countries to tailor their climate requirements to that of European standards or pay the assumed large tax. This will be particularly beneficial for attaining the targets set out in the Paris agreement, however, they could be misused for protectionist reasons and undermine the multilateral trading system. In the worst case, they might simply jeopardise trade and not even help the climate. Either way the implications of such a tax are huge, particularly for the steel industry and carbon intensive industries.
The Social Impact
Reducing emissions to net-zero levels does provoke social unease. The European Green Deal will need to face up to the inequalities shaping how different regions and social groups will be impacted by the climate transition. The tool used to implement this change is the Just Transition Fund, whose first investment cycle is aimed at the most carbon-intensive sectors in order to speed up the transition from fossil fuels. Despite the money being pooled by all the member states, the money will be funnelled only into ten recipients, Poland, Germany, Romania, Czech Republic, Bulgaria, France, Italy, Spain, Greece and the Netherlands. The current size of the fund stands at EUR 7.5bn, a figure which could not realistically tackle the whole transition of the energy sector. Through the expected ratification of the Climate Law next month, greater resources are expected to be made available to the massive financial and social commitments associated with phasing out carbon emissions.
To conclude, the size of the largest shift in European energy policy should not be underestimated. As it stands, Europe’s fragmented system creates inefficiencies across many industries, leading to competition in contrast to other nations. Through the reestablishment and restructuring of these sectors via the Green deal, it will allow the bloc to become the torchbearer in the fight against climate change and in minimising the negative externalities emitted by commerce. Ultimately, a big change in consumer behaviour is necessary for these policies to come to fruition, but with over 93% of EU citizens believing that global warming is a crisis, the policies are viewed as attainable. The current price of the project set at €1tn is expected to be financed by both member states and private actors. Having already pledged €503bn towards the Green Deal, the EU expects this to trigger investors’ capital towards sustainable projects. The success of this animation of private capital to green projects will play a vital role in the success of what is undeniably a very ambitious project.
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