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Europe’s green recovery from the COVID-19 pandemic

On 27 May, the European Commission’s published its historic proposal for the ‘Next Generation EU’ recovery fund worth €750 billion, topping the renewed proposal for a €1.1 trillion Multiannual Financial Framework (MFF) 2021-2027. This proposal for unprecedented investment in the European economy is set to dominate the political agenda of the European institutions for the upcoming months. However, as the European Green Deal was put on the top of the agenda only recently, the current situation begs the question how Green Deal initiatives are incorporated into the Commission’s recovery plans.

Main takeaways                

  •  The European Green Deal will be central in Next Generation EU, public recovery investments should follow EU energy and climate priorities;
  • Additional funding of €30 billion for the Just Transition Fund, bringing the total up to €40 billion;
  • The CAP budget will fall by around €34 billion, but farmers will receive funds for the green transition;
  • The Commission will increase its own resources via an extension of the Emission Trading System (ETS) to the maritime and aviation sectors and a carbon border adjustment mechanism.

Accelerated investments in the green transition

Within the recovery fund, the Commission proposes to set up a Solvency Support Instrument to mobilize private investment and thereby kick-start the economy. The Solvency Support Instrument will have a budget of €31 billion and will unlock up to €300 billion in support that will be linked to the green and digital ambitions of the EU. Apart from that, a new Strategic Investment Facility will be built into InvestEU, generating investment up to €150 billion in boosting the resilience of strategic sectors, notably linked to the green and digital transition.

To kick-start the green transition in times of crisis, the European Commission will come up with a Communication to start a European ‘renovation wave’ in the third quarter of 2020. This massive renovation wave of buildings will improve energy efficiency and promote the circular economy, whilst creating local jobs in the coming years.

On top of the renovation wave, the Commission will focus on rolling out renewable energy projects, especially wind and solar. To this end, the Commission will publish an offshore renewable energy strategy later this year. Moreover, the EU will reinforce its efforts to develop a clean hydrogen economy in Europe, something that is currently mainly promoted by Germany and the Netherlands.

When it comes to clean transport and logistics, the Commission aims to accelerate the production and deployment of sustainable vehicles and vessels as well as alternative fuels. This ambition includes the installation of one million charging points for electric vehicles and a boost for rail travel and clean mobility in European cities and regions.

The Next Generation EU recovery fund also adds €30 billion to the Just Transition Mechanism, bringing its allocated budget 2021-2027 up to €40 billion. As part of the Just Transition Mechanism, the Just Transition Fund will be reinforced to support re-skilling and to help businesses create new economic opportunities in the regions of the EU that are most affected by the green transition.

EU ‘green’ levies to finance recovery

How will this sustainable recovery be financed? The Next Generation EU will raise money by temporarily lifting the own resources ceiling to 2.00% of EU Gross National Income, allowing the Commission to use its strong credit rating to borrow €750 billion on the financial markets. To repay these loans in a fair and shared way, the Commission proposes a number of new own resources. The Commission will for example increase its own resources via an extension of the Emission Trading System (ETS) to the maritime and aviation sectors and a carbon border adjustment mechanism.

Next steps

German chancellor Angela Merkel, shortly before the start of the German Presidency of the Council of the EU, expressed the ambition to reach a compromise on the future EU budget and recovery fund by fall 2020. The proposal of the Commission, as well as the plans put forward by the Franco-German axis and the Frugal Four (Austria, Denmark, the Netherlands and Sweden), have kept the green transition high on the agenda and one can therefore reasonably expect the EU’s great leap forward in green technologies to materialize in the upcoming years.