European sovereignty
European elections - The Green Deal, a key issue
A few days before the European elections, it seems interesting to take a new update on the decarbonization of the European economy and an inventory of the progress of the European Green Deal. 3 questions for Juliette Cohen, strategist at CPRAM on climate ambitions.
Published on 30 May 2024
The European Green Deal will be a key issue in the upcoming elections. Before discussing why, can we take another look at the decarbonation of the European economy ?
Between 1990 and 2021, the EU reduced its greenhouse gas emissions by 31%, thus achieving the goals that it had set for that period. It did so through changes in its energy generation methods, notably a significant decline in coal and increased use of renewable energies. In addition, the EU achieved a slight decline in total energy consumption and substantial reductions in industry-driven greenhouse gas emissions.
Carbon neutrality by 2050 is, of course, still the goal and, with this goal in mind, an intermediate stage was added – reducing GHG emissions by 90% by 2040. This proposal is a basis for discussion, and the target will have to be adopted by the future commission.
This implies that the 2030 framework (which in the meantime provides for a 55% decline in GHG emissions) will be adopted in full and, with it, all Green Deal legislation. This highlights the need to maintain the competitiveness of European industry and to achieve a fair transition that benefits everyone. Lastly, under scenarios for achieving the target, the Commission has stated the need for massive investments in the energy sector.
Does this mean that the Green Deal, which was launched in 2019, is at a standstill?
No, it does not, but several heads of state have requested a regulatory pause. Why? Well, keep in mind that the Green Deal was launched in 2019 to assist the EU’s environmental transition towards carbon neutrality with a legislative framework including heavy financing. It was presented as the EU’s new growth strategy around four priorities: the environmental and digital transition of industry, the circular economy, protection of biodiversity, and energy systems.
But European industry’s lack of international competitiveness became increasingly flagrant with the spike in energy prices in 2022 and global competition in climate transition sectors such as electric vehicles, which the Chinese dominate. Meanwhile, the deployment of renewable energies has been held back strongly by a less favourable economic environment, including higher financing and electricity costs, and weaker economic activity. The risk of growing social unrest in sectors such as agriculture has also thrown cold water on the European Commission’s reform ambitions.
And, lastly, it has been more challenging, and taken longer, than expected to mobilise financing under the European stimulus plan. Almost four years after the launch of Next Generation EU, €230bn (as of 8 May 2024) had been disbursed to member-states out of the €800bn Recovery and Resilience Facility.
How far along is the take-off in European industrial policy?
European industry has been hit by a less favourable economy over the past two years, with an increase in energy and financing costs. In addition, it must deal with structural technical changes related to the climate transition, including electrification, decarbonation and others. Moreover, competition has become keener in climate and digital transition industries, such as photovoltaics, semiconductors, electric vehicles and hydrogen. Even so, industry’s share of euro zone GDP (18%) has trended upward a little since 2021, after years of declines.
The EU has planned European financing to assist these transitions under the Next Generation EU stimulus plan, but financing has been taken up more slowly than expected. The notion of strategic autonomy has been put forth as an argument in ensuring resilience in value chains, supply chains in certain sectors deemed critical, and production capacities within the EU. Many European measures have been passed along these lines over the past two years, including the Chips Act, the Critical Raw Material Act, and others. The Net Zero Industry Act of 2023 provides for some easing in European rules, such as those related to state aid. A debate on financing defence industries has also been launched.
Despite strong political will, not all these measures have yet had the same restructuring impacts as similar plans in China or the US, although announcements are made regularly on developing industrial infrastructure in Europe and in supply-chain partnerships with third countries. Developing industrial ecosystems takes a long time and requires lots of resources and public policies that provide long-term visibility and assistance. The coming years will be key to developing the industries of the future in Europe.