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Greening next-generation Europe

Oct 12,2021 - Last updated at Oct 12,2021

BRUSSELS — The COVID-19 crisis could have killed the climate cause. Instead, the pandemic has reinvigorated it, not least in Europe. Never before have so many of the region’s economy and finance ministers and business leaders realised that decarbonisation and the green transition can actually drive, rather than hinder, job creation, infrastructure investment, and industrial innovation. As Europe gears up for a post-pandemic economic recovery, decarbonisation is not only essential, but also presents genuine opportunities if we get it right.

One of the most encouraging examples of this new mindset is the European Union’s 750 billion euros Next Generation EU recovery fund, which must allocate 37 per cent of the money to climate initiatives, while the disbursement of the remaining 63 per cent will be subject to a “do no significant harm” principle.

Given that the EU and its 27 member states have committed to reducing carbon dioxide emissions by 55 per cent by 2030, and to becoming carbon neutral by 2050, ensuring that political decisions and new investments do not worsen the climate problem is common sense. But it nonetheless marks a new way of thinking and a recognition that climate concerns and emissions reductions must be integrated into a wide range of policies.

True, Europe’s energy transition is already well under way. An increasing number of EU member states are phasing out coal, renewables are expanding steadily, and policymakers recognise that energy-efficiency efforts are a key tool in bringing down the total cost of the green transition. But decarbonisation will require us to stop using fossil fuels, while sectors such as construction, transportation, and agriculture will need to contribute substantially more to emissions reductions than they have so far. In other words: Now comes the hard part.

Setting targets is an important first step, followed by getting the price of carbon right. The EU’s Emissions Trading System, established in 2005, is now really starting to work, with a current price tag of around 60 euros per tonne of CO2 emitted.

But European business leaders in the CEO Alliance — a group convened by Volkswagen Group CEO Herbert Diess, say that securing the most cost-efficient transition will require greater efforts. In early July, the alliance, comprising leaders of firms that together employ more than two million people and have annual revenues of more than 800 billion euros, called for “a strong carbon price signal […] across the whole economy” and a rapid reduction of “subsidies for technologies with high CO2 emissions”.

Moreover, the 12 energy, transport, and technology companies in the CEO Alliance are now working together to try to fast-track projects including battery development, sustainable buildings, smart power grids, digital carbon-footprint tracking, and electric transportation, including e-buses.

Collaboration among industries, and between the public and the private sector, may be Europe’s biggest challenge in the green transition. When clear and ambitious EU climate targets start to seep into policymaking and investment decisions, and countries start to price negative externalities and reform their tax systems accordingly, cooperation becomes a necessity. In politics, business, and science, new ways of working together are imperative.

This raises the question of whether the European governance model is fit for purpose, and able to deal effectively with complex climate issues. To manage its green transition successfully, Europe must align the need for efficient and forward-looking policymaking with continued adherence to inclusive, democratic processes. But is decision-making that involves several different levels of government fast and agile enough?

Addressing climate change with the necessary urgency and efficiency will require input not just from the natural sciences and economics, but also from the social sciences and humanities.

In the aftermath of the pandemic, the EU is taking bold new steps. In mid-July, the European Commission unveiled its Fit for 55 package, proposing 13 legislative proposals that aim to help the bloc achieve its 2030 emissions-reduction goal. The suggested measures, which EU member states and the European Parliament will negotiate over the next year, clearly show the level of Europe’s climate aspirations and ambitions.

But legislative changes alone will not suffice. For starters, large-scale new decarbonisation projects require capital investments. The so-called taxonomy of green investments that Europe is now implementing is thus a crucial development, and one that could be replicated internationally. Specific criteria are helpful when it comes to assessing future investment risks and avoiding stranded assets. Given that more than 130 countries have recently agreed on a global minimum corporate-tax rate, a worldwide agreement on such a taxonomy should be within reach.

Europe also faces an enormous challenge in up skilling and reskilling its workforce for the green transition. This will include making the labour force fit for widespread electrification of economies, retraining former coal-industry workers or others who had jobs in the old economy, and developing the right skills for sustainable retrofitting of buildings.

Decarbonisation will also affect all sorts of individual habits, including diet, travel and work patterns, and general consumption behaviour. As the green transition increasingly challenges citizens to rethink their values and actions, politicians seeking reelection will find it more difficult to lead the necessary reforms.

But the COVID-19 pandemic has provided an excellent opportunity to reflect upon our tendency to prefer business as usual to innovation and behavioural change. European political and business leaders have signaled clearly that they understand the urgent need for greater climate action, and have set their boldest and most ambitious targets yet. At the same time, Europe’s young generation has never been more impatient to see lofty rhetoric and noble intentions translated into real and visible action.

If those in power once again disappoint and fail to deliver a real transformation, Europe would become even more polarised than it already is. Europe’s younger generation is already fully committed to a green future. Faced with an ever more urgent climate crisis, the region’s current policymakers and business leaders must ensure that their “next-generation” policies are worthy of that title.


Connie Hedegaard served as European Commissioner for Climate Action (2010-14), and as Denmark’s minister for the environment (2004-07) and minister for climate and energy (2007-09). Copyright: Project Syndicate, 2021.

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