Global | Publication | April 2021
The European Union’s (EU) Green Deal is the EU’s main new growth strategy to transition the EU economy to a sustainable economic model. Presented in December 2019, the overarching objective of the EU Green Deal is for the EU to become the first climate neutral continent by 2050, resulting in a cleaner environment, more affordable energy, smarter transport, new jobs and an overall better quality of life. There are a number of funding mechanisms in place to facilitate the EU Green Deal, totalling over €1 trillion. This investment will fund the delivery of the policy reform needed for the EU’s economic growth and climate neutrality.
The proposed financing of the EU Green Deal is set out in the EU Green Deal Investment Plan. It comprises two principal financing streams totalling €1 trillion. Over half of the budget, €528 billion, will come directly from the EU budget and the EU Emissions Trading System. The remainder will be sourced through the InvestEU programme, which combines €279 billion from the public and private sectors to 2030 and €114 billion from national co-financing. It will provide an EU budget guarantee to allow the EIB Group and others to invest in higher-risk projects, enabling private investment. The European Innovation Council has also set aside a €300 million budget to invest in market-creating innovations that contribute to the goals of the EU Green Deal.
There is recognition in the EU Green Deal that transition can only succeed if it is conducted in a fair and inclusive way. As a result, a Just Transition Mechanism is proposed to exclusively focus on the regions and sectors that are most affected by the transition. It draws upon both the EU budget and InvestEU programme to generate €100 billion of funding. This will be available for the regions and sectors that depend on fossil fuels or carbon-intensive processes.
The main elements of the EU Green Deal are:
Between 1990 and 2018, greenhouse gas emissions in the EU were reduced by 23 per cent1. A central objective of the EU Green Deal is to set out the trajectory for the EU to be climate neutral by 2050. As a milestone towards this target, the EU Commission proposed a 2030 target to reduce greenhouse gas emissions by 55 per cent compared to 1990. This 2030 target is proposed to be reflected in a European Climate Law, which will also enshrine the 2050 climate neutrality objective of the EU Green Deal in legislation.
The European Climate Law requires that all EU policies contribute to achieving the EU Green Deal objective. As a result, the EU Commission are reviewing every EU law to ensure its alignment with the EU emission reduction targets, under an exercise termed the “Fit for 55 package”. This lengthy process has already begun. A selection of the key legislation that the EU Commission proposes to revise in light of the revised emissions reduction target is:
This review is intended to be effective by the time Member States begin updating their national energy and climate plans in 2023, so that these plans reflect the new climate ambition2.
The production and use of energy across economic sectors currently accounts for more than 75 per cent of the EU’s greenhouse gas emissions3. The Clean Energy policy area aims to reduce this figure by developing a power sector based largely on renewable sources and an integrated, interconnected and digitalised EU energy market4.
The offshore renewable energy strategy encourages the investment of almost €800 billion between now and 2050 in offshore energy infrastructure and research. This should increase the EU's offshore wind capacity from its current level of 12 GW to 300 GW by 2050 and the EU’s offshore ocean capacity from its current level of 13 MW to 40 GW by 2050. For further information about the offshore renewable energy strategy, please see our briefing: “EU sets out vision for offshore power”.
The EU Hydrogen Strategy explores the potential of clean hydrogen to contribute to decarbonisation5. The adopted strategy promotes clean hydrogen innovation and the installation of hydrogen electrolysers. The strategy includes a target to install at least 6 GW of green hydrogen electrolysers within the EU, producing up to 1 million tonnes of hydrogen by 2024. To 2030 the ambition is to install at least 40 GW of electrolysers, producing up to 10 million tonnes of hydrogen in the EU.
The Clean energy for all Europeans package will facilitate the strategy for energy system integration, which aims to improve the coordination of planning and operation of the energy system ‘as a whole’, across multiple energy carriers, infrastructure, and end uses. The EU institutions will discuss the strategy that outlines a vision to create a smarter, more integrated energy system.
A revision of the Trans-European Networks for Energy Regulation (the TEN-E Regulation) has also been proposed6. The revised framework reflects the accelerated take-up of renewable energy sources, smart sector integration, the modernisation of the EU’s cross-border energy infrastructure and mandatory sustainability criteria for all projects.
Together, these EU initiatives will work in synergy to lay the foundation for the decarbonised EU energy system.
At present, industry accounts for 20 per cent of the EU’s greenhouse gas emissions7. The EU Green Deal therefore includes actions to strengthen the decarbonisation efforts, ranging from product sustainability to the supply of raw materials. The adopted Circular Economy Action Plan presents initiatives to increase the duration of a product in order to alleviate pressure on natural resources8. It includes a Sustainable Products Policy, which regulates the improvement of product reusability, reparability and integration of recycled contents. The aim of the adopted EU Industrial Strategy is to develop markets for climate neutral and circular products and to encourage the digital transition in the EU9. The EU Green Deal notes that these measures are necessary to ensure the supply of the critical raw materials needed for clean technologies such as clean hydrogen, fuel cells and other alternative fuels, energy storage, and carbon capture, storage and utilisation.
In relation to batteries, the European Commission’s proposal for Sustainable batteries and a Regulation on batteries and waste batteries is seeking to strengthen the sustainability of supply chains and improve the recycling of industrial, automotive, electric vehicle and portable batteries placed on the market in the EU. The proposals include enhanced recycling targets, carbon footprint reporting requirements, moving to carbon intensity restrictions, as well as mandatory supply chain due diligence.
Buildings are responsible for approximately 40 per cent of the EU's energy consumption and 36 per cent of greenhouse gas emissions from energy10. The objectives of the EU Green Deal require cleaner buildings and construction sectors. The Renovation Wave is a strategy to renovate buildings to increase their energy efficiency11. It prioritises the decarbonisation of heating and cooling, tackling the worst performing building stock and the renovation of public buildings such as schools and hospitals. Energy efficiency in buildings will be a priority and the EU Commission will explore the possibility of including emissions from buildings in the EU Emissions Trading System (EU ETS).
The EU Commission is also reviewing the Construction Products Regulation, which sets the requirements for construction products in the Internal Market. A revised regulation has the potential to promote environmental goals and possibly product safety. In parallel, the EU Commission proposes to work on an open platform bringing together architects, engineers and local authorities to address the barriers to renovation. It could target energy service companies that could roll out renovation, such as through energy performance contracting. The reforms are intended to optimise the development of innovative financing in the construction sector and the promotion of energy efficient investments in buildings.
The Sustainable Mobility policy area comprises initiatives to reduce transport emissions, which account for 25 per cent of the EU’s greenhouse gas emissions12. The adopted Strategy for Sustainable and Smart Mobility lays the foundation for action to transform the EU transport sector, with the aim of a 90 per cent cut in emissions by 2050, delivered by a smart, competitive, safe, accessible and affordable transport system. Increased capacity and decreased congestion and pollution could all be attained as a result of efforts to promote more sustainable means of transport. The strategy sets a number of targets to 2030 including:
To meet these objectives, a number of proposals for revised legislation are being considered. One aspect is the review of the Directive on the Deployment of Alternative Fuel Infrastructure13, which sets the requirements for expanding the EU’s network of recharging and refuelling stations for alternative vehicle fuels such as electric batteries and hydrogen14. The Regulation setting CO2 emission performance standards for new passenger cars and for new light commercial vehicles may also be revised in light of the EU carbon neutrality target15. The revision would entail stricter emissions standards for road vehicles. The EU Commission also plans a revision of the Regulation on the trans-European transport network (the TEN-T Regulation) and of the Directive on intelligent transport systems. This aims to increase the uptake of zero-emission vehicles, make sustainable alternative solutions and support digitalisation and automation16.
Batteries will be important for electric vehicle deployment, as well as in energy system transformation. As a result, EU policy is also focused on sustainable battery supply chains covering the entire battery life-cycle, including recycling and re-use. In its proposal for a Regulation on batteries and waste batteries, the European Commission is seeking to strengthen the sustainability of supply chains and improve the recycling of industrial, automotive, electric vehicle and portable batteries placed on the market in the EU.
The EU ETS has proved effective in the sectors in which it operates. Part of the EU Commission work plan includes the revision of the EU ETS rules for the aviation sector including a review of the proposals to reduce free allowances allocated to the sector. The update would implement the carbon offsetting and reduction scheme for international aviation. Moreover, the EU Commission proposes to extend the EU ETS to the maritime sector and, subject to impact assessment, to road transport.
Pollution is the largest environmental cause of multiple mental and physical diseases, and of premature deaths17. It is also a significant driver of biodiversity loss. Therefore, the EU Commission has proposed a Zero pollution action plan. This proposes that pollution elimination measures are incorporated into all policy developments and steps are taken to further decouple economic growth from the increase of pollution18. The action plan comprises three headline actions on eliminating pollution. Firstly, a Chemical strategy for sustainability to protect the environment against hazardous chemicals. Second, a Zero pollution action plan for water, air and soil, to better prevent, remedy, monitor and report on pollution. Finally, the revision of measures to address pollution from large industrial installations to ensure that they are consistent with related EU Green Deal objectives. A revision of the Regulation on substances that deplete the ozone layer is also envisaged.
Food systems are responsible for around 21-37 per cent of global greenhouse gas emissions and use up significant natural resources19. The Farm to Fork strategy aims to address these environmental issues as well as fairness, sustainability of the food system and the health of Europeans. The strategy will focus on reducing waste, and transforming the manufacturing, processing, retailing, packaging and transportation of food.
The Farm to Fork strategy proposes to spend €10 billion on research and innovation on food, bio-economy, natural resources, agriculture, fisheries, aquaculture and the environment, as well as digital technologies and nature-based solutions for agri-food, funded by Horizon Europe, the EU’s research and innovation framework programme. EU policies and legislation will focus on trade policy to obtain commitments from third countries in areas such as animal welfare, the use of pesticides and the fight against antimicrobial resistance. The Commission and food-chain stakeholders are developing an EU Code of conduct for responsible business and marketing practice as well as seeking commitments from food companies and organisations to start taking steps towards improving health, sustainability and the environment. Reform of the common agricultural policy (CAP) is also envisaged.
Separately, the EU Commission has proposed a Strategy to reduce methane emissions. Methane is the second biggest contributor to climate change after carbon dioxide, and contributes to air pollution. Reducing methane emissions requires a cross sector approach: in the EU, 53 per cent of anthropogenic methane emissions come from agriculture, 26 per cent from waste and 19 per cent from energy. The Methane strategy focuses on adequate reporting and opportunities for biogas production, as well as specific measures in the energy, agriculture and waste sectors.
In the last 40 years, the population of wild species has fallen by 60 per cent due to human activities20. The EU Biodiversity strategy for 2030 identifies the key drivers in biodiversity loss as changes in land and sea use, overexploitation, climate change, pollution, and invasive alien species. Biodiversity loss and climate change are intrinsically linked, and nature-based solutions will play an important role in mitigating, and adapting to, climate change. The European Commission identifies that the industries highly dependent on biodiversity are the construction, agriculture and food and drink sectors. The EU Biodiversity strategy will work in tandem with the Farm to Fork strategy by focussing on restoring forests, soils and wetlands and creating green spaces in cities. To address legislative gaps that hinder improving biodiversity standards across the EU, the EU will implement a new biodiversity governance framework. This framework includes imposing legally binding nature-restoration targets to restore degraded ecosystems, to be achieved by fully implementing the EU Pollinators initiative and the Habitats Directive, as well as via the CAP.
The European Commission estimates that €20 billion per year is needed to fund the biodiversity strategy. This will require the use of a combination of public and private funding on a national and EU level as well as from the EU budget. Part of the Renewed Sustainable Finance Strategy will focus on ensuring the financial system contributes to mitigating existing and future risks to biodiversity, recognising the risk that biodiversity loss poses to the financial prospects of many sectors of the economy.
Research and development underpins each element of the EU Green Deal. Many of the EU Green Deal initiatives require harnessing new technologies, and transforming financial models and supply chains. Many research and development initiatives will be funded by Horizon Europe, which has pledged over 35 per cent of its €95.5 billion budget to achieving EU climate objectives21. Under Horizon Europe, the EU will form green partnerships with various industries and its member states to focus on key areas such as batteries, clean hydrogen, low-carbon steel, the built environment and biodiversity.
The EU Green Deal will require significant reorientation of the EU economy towards a low carbon model. This brings with it the risk of carbon leakage. The EU Commission has identified this as the risk that either production is transferred from the EU to other countries with lower ambition for emission reduction, or that EU products are replaced by more carbon-intensive imports. Carbon leakage is currently controlled by the free allocation of allowances under the EU ETS, or compensation for energy intensive industries impacted by higher electricity costs as a result of carbon pricing under the EU ETS. The EU Commission is therefore proposing a Carbon Border Adjustment Mechanism to ensure that the price of imports reflects more accurately their carbon content. This measure is proposed to be designed to comply with World Trade Organization rules and other international obligations of the EU.
Information correct as of 26 March 2021
With thanks to Alysha Patel and Tay Robinson for their contributions.
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