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Climate ambitions of Flanders and the European Green Deal

On 21 June, in an interview on Flemish news television VRT, First Executive Vice-President of the European Commission, Frans Timmermans, called on Flanders to be more ambitious in the fight against climate neutrality. However, he also said, he was optimistic that Flanders would do its part being a wealthy region, which already has industrial pioneers on board for the European objectives. But what exactly are the Flemish climate objectives, and how are they aligned with the EU plans?

Greenhouse gas emissions reduction by 35%

The Flemish climate policy plan sets out the guidelines for the climate policy for the period 2021-2030. In line with the objective imposed by the EU for Belgium, the plan puts forward the objective to reduce greenhouse gas emissions in Flanders by 35% by 2030 compared to 2005. However, the EU is setting this goal at a reduction level of 50-55% by 2030. The required effort is identified per sector and, where necessary, the greenhouse gas reduction target is converted into sub-targets. In addition, the plan also contains the main measures required to achieve this objective and puts Flanders on the path towards a low-carbon future.

Energy efficiency

Another priority for Flanders is to increase energy efficiency for all sectors. The three largest energy consumption sectors in Flanders are industry, residential and transport sectors. In addition to improving energy efficiency, simultaneous efforts must be made to achieve the strong development of renewable energy. Energy services and technologies will be digitally controlled and intelligently linked. However, this is a huge challenge for Flanders. In the period 2005-2018, emissions decreased by only 5%. The Flemish Government, therefore, intends to focus more on increasing innovation, the persistence of circular economy, parallel federal policies and additional EU instruments (legislative and financial).

Transforming buildings will also play an important role in increasing the energy efficiency in densely populated Flanders. The climate policy plan encourages the renovation of residential buildings, rebuilding after demolition and making the heating installation more sustainable. This is in line with the EU’s ‘Renovation Wave’ initiative, part of the European Green Deal, with the goal to double the annual renovation rate of the existing building stock. The European Commission will publish communication on this in September 2020.

How can Dr2 Consultants advise you

The EU’s ambition is to lead the way towards a more sustainable future. Contrary to the fear that the COVID-19 pandemic would jeopardize the green agenda for the coming years, the Commission has shown its commitment to accelerate the green transition during the recovery phase. This green transition will pose challenges but will also provide opportunities to businesses, like front runners who can introduce their new and innovative approaches in Flanders. With the Dr2 Consultants’ European Green Deal Impact Scan, we will provide you with a comprehensive analysis of how the European Green Deal will affect your business, identifying the opportunities and challenges and highlighting moments to positively influence the policies and legislation. In addition, we are able to provide you with high-end intelligence on the developments in Flanders that allows for a comprehensive overview of relevant files for your business.

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.

The EU Budget proposal and its impact on the digital sector

On 27 May, the European Commission put forward its proposal for a major recovery plan. The plan includes not only a proposal for the EU’s Multiannual Financial Framework for 2021-2027 – The EU budget powering the recovery plan for Europe, but the European Commission also proposes to create a new recovery instrument, Next Generation EU.

Next Generation EU, with a budget of €750 billion, together with targeted reinforcements to the 2021-2027 EU budget with a proposed budget of €1.1 trillion, will bring the total financial firepower of the EU budget to €1.85 trillion. Including other schemes such as Support to mitigate Unemployment Risks in an Emergency (Commission’s safety net for workers), the European Stability Mechanism Pandemic Crisis Support (Eurozone’s enhanced credit line) and the European Investment Bank Guarantee Fund for Workers and Businesses (focused primarily on small and medium-sized companies), with a combined budget of €540 billion, significant funds will be available for European recovery.

Next Generation EU will raise money by temporarily lifting the European Commission’s 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 help do this in a fair and shared way, the Commission proposes a number of new own resources among which extension of the EU Emission Trading System (ETS) to include maritime and aviation sectors, a carbon border adjustment mechanism, a digital tax and a tax on large enterprises.

Finally, the Commission has published an update of its 2020 Work Program, which will prioritize the actions needed to propel Europe’s recovery and resilience.

The future is digital

The outbreak of COVID-19 has highlighted the importance of digitization across all areas of the economy and society. New technologies have helped businesses and public services to keep functioning and have made sure that international trade could continue. It is expected that, in the long run, the pandemic will have triggered permanent social and economic changes: more remote working, e-learning, e-commerce, e-government. It has, therefore, become imperative for businesses and governments to invest in digitalization.

The twin transitions to a green and digital Europe remain the defining challenges of this generation. This is reflected throughout the Commission’s proposals, which stress that investing in digital infrastructure and skills will help boost competitiveness and technological sovereignty.

Implications for the digital sector

A new instrument, the Solvency Support instrument would be primarily aimed at countries hit hardest by the crisis and unable to provide state aid to their most vulnerable sectors. The distribution of this ‘immediate and temporary’[1] tool will also aim to prioritize green investment according to the Commission. While welcomed by poorer countries the instrument might not have the desired effect unless agreed upon and deployed quickly by the Member States.

The Strategic Investment Facility will be used to promote the green and digital transitions by investing in 5G, artificial intelligence, the industrial internet of things, low CO2 emission industry and cybersecurity. Since such investments might become significantly riskier in the aftermath of the pandemic, the Commission stands behind a common European approach to provide the crucial long-term investments for companies implementing projects of strategic importance. The Strategic Investment Facility will take a more forward-looking approach by focusing on ‘projects relevant for achieving strategic autonomy in key value chains in the single market.

The Digital Europe Programme will be used for the development of EU-wide electronic identities and for the building of strategic data capabilities, such as artificial intelligence, cybersecurity, secured communication, data and cloud infrastructure, 5G and 6G networks, supercomputers, quantum and blockchain. The Commission has managed to withstand the significant pressure from Member States to reduce the funding of the Programme and the digital transition remains one of its key priorities.

In terms of financial inputs, the digital sector would be affected by two of the newly proposed taxes, aimed at funding the Commission’s so called ‘own resources’ used to repay the recovery package. The new digital tax would come into play at EU level if no global solution could be reached at OECD level. If the tax is applied to companies with an annual turnover higher than €750 million, it could generate up to €1.3 billion per year for the EU budget. The other relevant provision is the new corporate revenue tax, which if applied according to the same principle as the digital tax at a rate of 0.1 percent could generate up to €10 billion annually.

The Commission tried to introduce a European digital tax last year but its proposal was blocked by several Member States. The chance of such a proposal being accepted at this date appear slim as unanimity is required and Ireland, amongst others, has been adamantly against it. However, with the departure of the UK who had previously provided strong backing for Ireland’s opposition, some form of digital taxation being accepted remains a possibility. The new corporate tax was also previously unsuccessfully introduced by the Commission in 2016 and would be aimed at ‘companies that draw huge benefits from the EU single market and will survive the crisis.’[2] The chances of the proposal being accepted are also relatively low with countries such as Ireland, Denmark, Luxembourg and the Netherlands strongly opposing it. The proposal might also provoke a ‘race to the bottom’ phenomenon where companies relocate to countries willing to provide them with the most favorable business conditions. While both taxes are facing strong opposition from some Member States, the alternative of increased national contributions might convince leaders that accepting a form of these levies would be the more politically savvy option.

In conclusion, the new EU budget proposal creates new opportunities and challenges for the digital sector with the potential application of new pan-European taxes but also with additional funding devoted to digitalization, increased connectivity and sustainable value chains. The Coronavirus pandemic has demonstrated the increasing importance of digitalisation for the daily functioning of the economy and the Commission’s proposal reflects that through a series of digital political priorities. Increased connectivity, investment in strategic digital capacities (artificial intelligence, cybersecurity, data and cloud infrastructure, 5G and 6G networks, blockchain and more) building a real data economy and legislative efforts on data sharing (a EU-wide Data Act), as well as a thorough reform of the single market for digital services (Digital Services Act expected in late 2020). The combination of budgetary provisions and policy priorities makes the moment beneficial for a transition to online business models, a trend which has appeared during the pandemic but is expected to remain for the next few years.

[1] Annex to the Commission Budget Communication, p 6.

[2] Commission Budget Communication, p 15.

Bold sustainability ambitions in the European Union

Already in July, Ursula von der Leyen made clear that the new European Commission has bold ambitions to tackle climate change: The European Union must become an example of how to live sustainably. In this regard, energy efficiency and circular economy are central to the European way of life.

Frans Timmermans and the European Green Deal

The European Green Deal will be the guide for this ambitious transition, targeting among other things, an emission reduction of 50% to 55% by 2030. This target is about 10-15% higher than the current 2030 climate and energy framework. The Commissioner in charge of the Green Deal will be the Dutchman, Frans Timmermans, who also holds the position of first Executive Vice-President of the next European Commission. In his hearing in the European Parliament on 8 October, he urged the European Parliament to be ambitious and lead by example in the world. To make a real difference with regards to global warming, the EU needs to focus on talks with its global partners, according to Timmermans. He feels like he has got a strong mandate, since according to statistics, 9 out of 10 European citizens want the EU to act decisively on climate change.

Concretely, Timmermans will propose a draft Climate Law within the first 100 days of his mandate. This law will put into legislation the EU’s climate ambitions, but most importantly determine the in between steps to be taken to reach these goals. Timmermans is strongly considering using infringement procedures against Member States not complying with the EU’s upcoming climate laws and its ambitions. Furthermore, the Climate Pact will engage citizens with the EU’s climate policy which would make legislation seem less ‘top-down’.

Virginijus Sinkevičius and the European Circular Economy

Three years after its adoption, the Circular Economy Action Plan can be considered fully completed. Its 54 actions have now been delivered or are being implemented. Together with Timmermans, Lithuanian Virginijus Sinkevičius will however increase the ambitions in the field of the circular economy. Sinkevičius stated during his hearing in the European Parliament on 3 October that if the EU ensured the complete circular use of just four materials (steel, aluminum, cement and plastic) – which goes further than the existing Circular Economy Action Plan – EU’s industrial emissions would be cut in half.

Sinkevičius believes that a new action plan can involve three major areas:

  • First, by examining the ways in which the EU produces and consumes. He mentioned particular further action on eco-design and more focus on reuse and repair. This strand could also integrate circularity in other sectors such as textiles, construction, food and ICT.
  • Second, by helping consumers make informed choices.
  • Third, by moving beyond recycling. Waste should not only be minimized, but prevented completely in areas such as textiles and construction.

Environment Council

Not only the European Commission wants to increase the European ambitions regarding climate change and sustainability, but also the Council realizes their importance. On 4 October, Environment Ministers held a debate on the EU’s strategic long-term vision for a climate neutral economy and adopted conclusions on climate change, which set out the EU’s position for the UN climate change meetings (COP25) in Chile in December 2019. The Council called for action to promote circularity systemically across the value chain, including from the consumer perspective, in key sectors including textiles, transport, food as well as construction and demolition. The Council also stressed the need for more measures on batteries and plastics.

 

 

 

 

Habemus Presidentus

After long and difficult negotiations, the European leaders have come to an agreement on the four top jobs in the European Union. After all, none of the previously speculated candidates have been rewarded for their campaign.

The EU’s top jobs go to:

  • President of the European Council is Charles Michel (Renew Europe) from Belgium;
  • (nominated) President of the European Commission is Ursula von der Leyen (EPP) from Germany;
  • (nominated) President of the European Central Bank is Christine Lagarde (EPP) from France;
  • (nominated) High Representative of the Union for Foreign Affairs and Security Policy is Joseph Borell (S&D) from Spain.
  • President of the European Parliament will be David Sassoli (S&D) from Italy.

It is clear that there is now no geographical balance between the Western and Eastern European countries and the above nominations have been a result of days-long tough negotiations. Traditionally the function of the Presidency of the European Commission is reserved for the biggest group in the European Parliament, which has been the EPP. Since the introduction of the Spitzenkandidaten process (by the Lisbon Treaty), the European Parliament even tried to institutionalize the nomination of the President of the European Commission, but after all the European Council has the final word to decide over this role. The Spitzenkandidat of the EPP, Manfred Weber, lost substantial support in the last weeks and there were doubts regarding his nomination even within his own party. Most of the criticism was due to his lack of experience in the executive branch. Therefore, there have been a few alternative names floating, including Chief Brexit negotiator Michel Barnier, but also German Chancellor Angela Merkel as possible successor of Jean-Claude Juncker.

Frans Timmermans, however, seems to be the biggest loser. During the G20 Summit in Osaka, Angela Merkel proposed the social democrat Frans Timmermans as the new President of the European Commission. However, EPP was not in favour of this solution. alongside with the V4 countries that opposed Timmermans because, as Vice-President of the Commission, he often criticized these countries due to their issues with the rule of law.

In the afternoon of 2 July, the name of German Defense Minister, Ursula von der Leyen, emerged as a new option as President of the European Commission. She is German and knows Brussels very well, but she also speaks French, something that made her also a good option for French President Emmanuel Macron. In return, Macron proposed Christine Lagarde as the new president of the ECB. Gender balance has thus been achieved and in order to meet the geographical balance, the Member States proposed the Bulgarian Sergei Stanishev as new President of the European Parliament. However, the European Parliament has the right to choose its new president and the MEPs voted in favour of David Sassoli (S&D) from Italy.

Ursula von der Leyen is yet to be confirmed by the European Parliament as the President of the Commission, however, it seems that the Socialists and the Greens are not satisfied with the choice of the Member States.

What’s next for payments in the EU?

The past mandate has heavily contributed to shaping the future of the payment landscape in the EU. Among public affairs professionals involved in payments for more than 5 years, the fact that payments used to be a very niche topic which wasn’t a very “sexy” conference topic has become a recurring joke. Regulation around payments or impacting payments is now in the center of key debates, including, for example, the international role of the EU and the autonomy of the EU. Regulatory workstreams are converging in an attempt to develop innovative, cost-effective and consumer-centric solutions in the EU.

In 2015, the EU adopted a new directive on payment services (PSD2) to adapt rules to the new realities of the payment landscape, promote competition and the development of innovative payment solutions as well as to reinforce consumer protection (against fraud, for instance). PSD2 has been described as the advent of Open banking and innovation. ‘Open banking’ is used to describe the shift from a closed model to one in which data is shared between different members of the banking ecosystem – with consent from the customer – to encourage collaboration between established banks and fintech companies.

While the expected “revolution” and disruption of traditional models is slower than expected, there are high expectations for the development of new, innovative, consumer-centric and affordable solutions. Discussions on the technical application of PSD2, for instance, around what Application Programming Interfaces (API), used to allow access to the payment account, should look like are still ongoing in certain European groups and are likely to continue in the coming months.

More recent communications for the European Commission opened the door for further regulatory developments when it comes to innovation in the financial sector, including the FinTech action plan and the workstream on Artificial Intelligence. There is no doubt about the strategic role of data and future regulatory developments regarding access to data on the payment landscape in the coming years.

Costs of payment have also been high on the previous Commission’s agenda and will continue to be in the coming years. In 2015, the EU also adopted a Regulation on Interchange Fees which aims at – together with PSD2 – limiting transaction fees based on consumer debit and credit cards and banning retailers from imposing surcharges on customers for the use of these types of cards. The European Commission is now looking into the effect of this Regulation and is expected to release an implementation report in 2020, possibly accompanied by amendments.

In addition to the discussion on Interchange fees, the EU adopted new rules to make cross-border euro transfer cheaper and currency conversion in the EU fairer.

At the intersection of questions of innovation, evolution of consumer expectations and costs is the conversation about instant payments, which will likely be an important focus for the next European Commission. The European Commission has expressed its wish to further promote the development of European solutions, relying on tools such as SEPA Instant Credit transfer scheme or the TARGET instant payment settlement (TIPS) service.

The EU is well aware of the fact that global – non-EU – providers are tapping into the potential created by favorable infrastructure and regulatory framework, and this trend is of course reinforced by the technological superiority of other regions, for instance on AI. Further actions are therefore expected on these fronts in the coming years.

EU Summit – EU leaders fail to agree on top jobs and long-term climate strategy

On 20 and 21 June, European Union leaders met in Brussels for a two-day summit to reach an agreement on who the next leaders of the EU institutions will be and to discuss the EU’s strategic agenda for the next five years. Additionally, they also planned to discuss climate change and the bloc’s long-term budget.

Unsurprisingly, the Heads of State and Government of the EU failed to agree on a name for the next Commission President and will meet again on June 30 to try to finally seal a deal. Gathering just a few weeks after the European elections, the leaders were determined to agree on key appointments before the new European Parliament has its first plenary session in the first week of July. Ahead of the summit, European Council President Donald Tusk was already expecting stiff opposition from some EU leaders to the EPP’s Spitzenkandidat Manfred Weber. He proved himself right at the end, with EU leaders ultimately being divided: Emmanuel Macron called the whole Spitzenkandidaten process, which ties the appointment to the results of the elections, a fiction. Angela Merkel (Germany, EPP) and Mark Rutte (Netherlands, Renew Europe) were less harsh in their assessment and are still hoping to secure support for their Spitzenkandidaten at the next European Council.

Moreover, not only the European Council is divided, but also the European Parliament strongly voiced its opposition against EPP Spitzenkandidat Manfred Weber. The Socialist and Liberal groups in the European Parliament openly opposed Weber’s candidature. Lastly, the hesitation on the part of the European Parliament to agree on a single candidate could benefit the European Council, which could force a candidate on the European Parliament. Of course, this course of action depends on the European leaders getting their acts together and acting forcefully. In order to do that, they will have to agree on a suitable candidate sooner rather than later.

The appointment of the next European Commission President thus appears to plunge the EU into an institutional crisis. Still, the difficulties in the current negotiations should not be exaggerated since also in 2014, the final decision was made only in late August. However, at the time, the EPP and S&D still had a joint majority and were able to agree on a single candidate, contrary to the current situation. As such, it still remains unclear who will ultimately fill Jean-Claude Juncker’s shoes.

The European Council also failed to agree on the 2050 climate goals as Poland, Czechia, Estonia and Hungary opposed the inclusion of an explicit date. The EU split on climate change measures showed once again the rift between the western and eastern Member States. The latter heavily depend on a fossil-fuel economy and thus do not support targets already agreed by the bloc as they perceive them as damaging to their economies. The conclusions of EUCO called on the Commission and the Council to work further towards a climate-neutral EU in line with the Paris Agreement while taking into account Member States’ national circumstances and respecting their right to decide on their own energy mix. The issue is expected to come up again at the next European Council with an agreement scheduled to be reached at the end of 2019.

During the summit, the EU leaders did agree on a strategic agenda for 2019-2024, in which they pledge to protect citizens and freedoms, develop a strong and vibrant economic base, build a more climate-friendly, green, fair and inclusive future and defend European interests and values on the global stage. The strategic agenda will serve as the framework for the actions of the next European Commission. Together with a joint program from the four major political groups (EPP, S&D, RE and the Greens), both documents will heavily influence the working programme of the next European Commission.

Informal European Council meeting kicks-off the process to agree on new leaders of the EU top jobs

Yesterday, 28 May, EU leaders gathered in Brussels for an informal summit following the European Parliamentary elections. Under the first agenda item, the state of play of the populist parties was discussed among the Heads of States. Despite the loss of votes for the European People’s Party (EPP) and the Social Democrats (S&D) the electoral gains of the anti-EU parties remained relatively limited. In the new European Parliament, pro-European parties will be able to keep their majority. Furthermore, centrist parties, such as the Alliance of Liberals and Democrats in Europe (ALDE) and the Greens won quite some seats. President of the European Council Donald Tusk argued that Brexit helped as a “vaccine” against the hard-liner slogans of the Eurosceptic parties. Tusk additionally said that even the most anti-EU parties had to change their rhetoric from abandoning the EU to reform the EU, which, according to him, is a positive development.

However, the most important topic of yesterday’s summit was not about Brexit, but about the future of the European Union and the future European top jobs. The European leaders decided not to discuss names of individual candidates but mandated Tusk to look for a new President of the European Commission through engaging in a dialogue with both the European Parliament and the Member States. Tusk hopes to present a candidate Commission President by the June European Council meeting (20-21 June), supported by both European leaders and the European Parliament. Factors that play a role for the top job are experience, geographical distribution, power distribution between the big and small countries, demography, political party affiliation and gender balance. As only the High Representative for Foreign Affairs and Security Policy is now a woman, it will be interesting to see whether the future top jobs will effectively be held by women. This could of course help the ambition of Margrethe Vestager as next President of the European Commission.

Other candidates in the race are the Spitzenkandidaten of the European political parties. The Party of European Socialists (PES) will push for the candidacy of Frans Timmermans, as he has the best profile and the most executive experience. On the other hand, the EPP is still the biggest party in the European Parliament, but EPP Spitzenkandidat Manfred Weber lacks executive experience, both at national and at EU level, which seems a prerequisite to hold the office of Commission President. Therefore, current Brexit negotiator Michel Barnier, also EPP, could be a compromise candidate if Germany accepts a French instead of a German candidate.

The stakes are high because in addition to the position of Commission President (currently Jean-Claude Juncker), also a new President of the European Council, a new High Representative for Foreign Affairs and Security Policy (currently Federica Mogherini), a new Parliament President (currently Antonio Tajani) and a new President of the European Central Bank (currently Mario Draghi) will have to be elected. According to EU diplomats, Tusk will eventually draw up a list of one candidate for each of the four posts. A separate procedure for the presidency of the European Central Bank will be followed.