In depth: The EU’s plan to become the first climate-neutral continent

in-depth:-the-eu’s-plan-to-become-the-first-climate-neutral-continent

CHN’s media partner EURACTIV takes a look at the ‘king of policies’ that will define Europe’s future, just as the EU finally looks ready to adopt it

The EU is on the cusp of agreeing the commission’s ‘Clean Planet for all’ strategy, which aims to make sure the EU economy is compliant with Paris Agreement targets.

After much number-crunching and politicking, officials settled on an option to slash greenhouse gas emissions drastically.

Under the plan, EU-wide climate-damaging emissions will have to fall to a net-zero level by 2050. Any remaining emission output will have to be so low that forests, wetlands and perhaps technology can absorb the surplus.

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That means that individual countries will not necessarily have to reach net-zero by 2050 themselves, as the likes of Finland and Sweden aim to achieve the feat much earlier, so there will be room to manoeuvre for slower starters.

The European Parliament was the first to back the commission’s plan but the real fight has since raged in the European Council, the member state institution that actually tasked the EU executive with drawing up the strategy in the first place.

Unanimous support is currently required to adopt the net-zero goal and over the course of the last 12 months, more and more countries have lined up behind it. At a June summit, the count reached 24 countries but fell short of the required 28.

Since that meeting, one of the four hold-outs, Estonia, has jumped on board but the Czech Republic, Hungary and Poland still need convincing about the financial implications of agreeing to the target.

Polish shift

Several diplomats contacted by EURACTIV are confident of a deal in December though, as enough developments both at EU and national level have happened in the meantime. The pressure has also built to a telling level.

Polish elections in October resulted in the ruling Law and Justice party (PiS) securing another term in office. Climate change policy was seen as a no-go area for prime minister Mateusz Morawiecki while campaigning for reelection but now his hands are free.

Polish prime minister Mateusz Morawiecki (Photo: Kancelaria Premiera)

According to EU climate officials, there has been a step-change since PiS’s victory and the net-zero plan is now met with ‘how’ rather than an ‘outright no’. Financing the roughly €500 billion needed per year across the bloc to reach net-zero remains the main sticking point.

Coal was absent from Morawiecki’s post-election speech to parliament but clean energy was given special mention. “There was a time when we could have said we cannot afford to develop renewables. Now we cannot afford not to develop them,” he said.

Last week, Polish utility PGE announced that it is close to signing a deal with the world’s biggest developer of offshore wind, Orsted. It aims to sell a 50% stake in two wind farms to the Danish firm.

PGE’s chief executive Monika Morawiecka, a cousin of the prime minister, says that total capacity will reach 2.5 gigawatts at the two sites.

Under the new government, the energy ministry has also been disbanded and a new climate ministry is now in place, headed by COP president Michał Kurtyka, whose international profile has skyrocketed thanks to his role in UN talks.

Another factor that makes a Polish U-turn more likely is the dangerous levels of air pollution in the country’s cities, especially when inefficient heating systems ramp up in winter. Premature deaths number in the thousands in Poland and the issue is firmly in the public spotlight.

In addition to a new multi-billion-euro clean air programme, signing up to the 2050 plan in Brussels is less politically toxic now for Morawiecki if it is spun back at home as an anti-smog measure.

Hungary’s meltdown

Viktor Orbán’s government initially said it would back the 2050 target but backtracked when it became clear that Poland would not budge at the June summit. The Czech Republic and Estonia also saw safety in numbers.

Hungary’s support was predicated on nuclear power being an option to decarbonise the economy. “Without atomic energy, there is no climate neutrality,” Innovation minister László Palkovics said at the time.

The Central European country gets more than 20% of its power from nuclear and 14% from renewable energy but plans to ratchet up its atom-smashing capacities in the coming years.

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Budapest has asked the commission to relax certain nuclear rules so that building works on its planned upgrade to the Paks power plant can proceed through partial licensing, rather than having to wait for time-consuming approval on the full site.

A commission source told Reuters that the institution is still reviewing the request. Approval could help Hungary in its efforts to help renegotiate the terms of the Russia-backed project with Moscow.

Budapest might also find reassurance in recent developments at the European Investment Bank, which has updated its energy lending policy to largely scrub its loan books of fossil fuels after 2021.

As part of the bank’s efforts to build consensus among its member state shareholders, officials at the triple-A rated lender took nuclear off the negotiating table and pledged to leave its policy towards the energy source untouched.

Technically, it means that nuclear remains eligible for EIB financing but, as pointed out by bank vice-president Andrew McDowell, no money has been put up for a new build since the early 1990s. Only safety and decommissioning projects have benefitted.

Orbán may also be compelled to back the 2050 goal when crunch time comes, especially after his ruling Fidesz party lost control of the capital. Budapest’s new green mayor has already declared a climate emergency and pledged carbon-neutrality.

The three hold-out nations have kept their cards close in order to eke out as many concessions as possible, with talks ongoing on the EU’s long-term budget, a new financial mechanism for most-affected regions and changes to lending policy at the EIB.

Their recalcitrance has tested the patience of other countries like France and the Netherlands by delaying the process, which forced the EU to go to a UN climate summit in New York empty-handed. There will also be little to shout about at Cop25 in Madrid.

But sources say Poland especially has reached the limits of its good faith and the new commission of Ursula von der Leyen will not hesitate to include the net-zero goal in a forthcoming climate law even if the EU28, or EU27 after Brexit, fail to agree.

Madrid climate talks to split nations into vanguard and laggard

Given that the legislation will be in the domain of environment, qualified majority voting would apply and the three 2050 hold-outs would lose their veto.

Commission officials insist that this is not the preferred option because of the scale of the transition needed by the mid-century strategy but have not ruled it out as a final resort if talks continue well into 2020.

At the start of Cop25 on Monday, von der Leyen doubled down on the 2050 target’s inclusion in the forthcoming climate law.

But if negotiations were to stall, the EU would be put on the back-foot internationally, as it would take a number of months to push through the law. Long-term climate strategies must be submitted to the UN at the end of 2020, leaving little space for diplomacy.

Next year is meant to be the year of soft climate power for Brussels, where envoys can take the 2050 plan to other parts of the world, deploy it in trade talks and push countries to be more ambitious in their own long-term plans.

Any delay into 2020 would cut the time in which that exercise can be made.

Sealing a deal

The new commission will reportedly make a last-ditch attempt to sweeten the deal on the table by publishing the details of its Just Transition Fund (JTF), along with the broad strokes of the European Green Deal, on 11 December, one day before the council summit.

EU officials are actually split over whether to show their hand before the summit or wait until after the council to go public, in order to get assurances that the net-zero target will be supported by everyone.

Under a proposal by the parliament, nearly €5 billion of the long-term overall budget would be ringfenced to help regions adapt to the energy transition.

Commission sources have told EURACTIV that the overall pot will be larger under its plans for the fund and might total between €15-20 billion or even €35 billion, by leveraging regional funds and other existing instruments.

The buildings of the Silesian Museum are built in and on top of a former coal mine in Katowice, Poland (Photo: Deposit Photos)

Regardless of the final figure, the commission’s proposal, which will feed into the ongoing long-term budget talks, will be more substantial than the parliament’s, which was designed by Polish lawmaker Jerzy Buzek.

Poland in particular has championed the need for an effective Just Transition Fund as part of a broader package, in return for its support on the net-zero issue.

Ursula von der Leyen also made extensive mention of the fund in her speeches to parliament and has entrusted Frans Timmermans and regional commissioner Elisa Ferreria with overseeing the mechanism.

During his hearing in front of MEPs, the Dutchman Timmermans said that “ there will be new money. It can’t all be rechanneling of existing funds”. He explained that it will be a “mix of fresh money, combined with co-financing”.

EIB link, fund fatigue

The JTF will also link up with the EIB’s updated lending policy, which along with scrapping fossil fuel support also increases the level of co-financing available for certain countries from 50% to 75%.

Ten member states eligible for the Emissions Trading Scheme’s Modernisation Fund (Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia) will benefit from the higher ceiling.

A perennial problem of EIB funding is that member states are often ill-equipped or lacking the know-how to submit effective bids for cash injections. The JTF is set to include dedicated financing for so-called ‘technical assistance’.

Bank sources told EURACTIV that more money for technical assistance would be the perfect complement to its updated lending policy.

But the JTF is not a universally popular idea. EU policy think-tank Bruegel said in a paper on how the European Green Deal should work that “the EU does not need to establish a new Just Transition Fund to support coal-mining regions”.

“It only needs to make better use of the existing European Globalisation Adjustment Fund (EGF),” a mechanism set up in 2006 that has a maximum annual budget of €150 million. Bruegel points out that, on average, only €40 million has been doled out per year.

The EGF can be activated when more than 500 workers lose their jobs at one single company because of changes in global trade or, more recently, the economic crisis. Bruegel suggests that its scope should be broadened to include the impact of decarbonisation.

Using an existing mechanism would cut bureaucratic hurdles but focusing the EGF’s activities on phasing out coal could displease member states who want the Just Transition Fund to be broad in scope, not limited just to energy issues.

The discussion is set to become far more heated in the course of 2020, when the talks on the EU’s seven-year budget move towards concluding.

Enter Frankfurt

The sheer scale of the transition needed to achieve net-zero cannot be understated. Outgoing commission officials have branded it “the king of policies” and “the defining legislation of a generation”. The size of the bill is equally large.

In order to generate the estimated half a trillion euros that will be needed every year up to 2050, EU funding will not be enough, and the institutions have not shied away from that.

The EIB’s updated lending policy has already been warmly received by officials and diplomats alike, thanks to the €1 trillion in attracted investment up to 2030 predicted by the EU lender.

Over the past half-century, the EIB has achieved a leverage ratio of roughly one to three, meaning that for every €1 euro invested, €3 more have been attracted.

But there remains a funding gap, even with a possible €100 billion a year purely from the EIB for green policies. That is where the European Central Bank is being encouraged to step in.

Former International Monetary Fund Director Christine Lagarde has already taken over from Mario Draghi and the French national has signalled that increased climate action will be a part of her eight-year-long tenure in Frankfurt.

Christine Lagarde (Photo: World Economic Forum)

During her speech to the parliament in September, Lagarde said the ECB should “gradually eliminate” carbon assets from its books, although she added that “it cannot happen overnight”.

In an open letter to Lagarde dated 28 November, academics and civil society called on the new president to do more in climate policy and to mirror the EIB in pulling out of fossil fuels by 2021.

“Central bankers are understandably wary of going beyond their mandate and overlapping the role of governments. But the reality is that the European Parliament has repeatedly confirmed the necessary role of the ECB for sustainability,” said Stanislas Jourdan of Positive Money Europe, a signatory to the letter.

The ECB can buy EIB bonds and between 2015 and 2018, it created on average €55 billion per month. Its statutes say that it can buy 50% of the lender’s bonds but can only do so on the secondary market, for example from pension funds.

A bank source told EURACTIV the ECB would look to continue the practice under Lagarde but any decision to increase the scale of buying would be made “in total independence”.

But there is already pushback against any greater involvement of the Frankfurt bank in climate policy. ECB board member Benoit Coeure said on 28 November that “central banks cannot be at the forefront in fighting climate change.”

“This is and should remain a political task. But they can help within their mandates,” he insisted, adding that monetary policy can fight weakness in demand but it was not the right tool to address changing consumer preferences, such as a switch away from fossil fuel-driven cars.

Bundesbank chief Jens Weidmann, who was previously tipped to succeed Draghi, also batted back the same call, saying it was up to governments and not the ECB to fight climate change.

“Monetary policy that explicitly pursues environmental goals runs the risk of being overburdened,” the hawkish minister told an event in Berlin.

“Politicians with democratic legitimacy must decide how society should combat climate change and they must also bear the responsibility this,” Weidmann added.

EU diplomats told EURACTIV that more explicit mention of ECB involvement in a potential net-zero 2050 final agreement could be an option but the feasibility is still being explored.

This piece was originally published on EURACTIV

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