The European Union is set to launch a down payment on a Green New Deal.
As the world slips into a deep economic recession – and some indicators are as bad as the Great Depression – trillions of dollars are flowing in the form of government stimulus. To date, much of that has been aimed at re-inflating the pre-pandemic economy, particularly in the United States. In fact, the Trump administration has been going further, dealing out benefits to oil and gas while slapping fees retroactively on renewable energy.
There has been quite a bit of talk about green stimulus in recent months, and not just from environmental groups. The IMF and the IEA have both said that macroeconomic recovery should be done with the climate change in mind, and green stimulus checks multiple boxes at once. Even top global corporations have said the same. A coalition of 150 companies worth a combined $2.4 trillion recently signed a statement calling on governments to ensure their pandemic response is “grounded in bold climate action.”
On May 27, the European Commission will unveil details on its “Green Deal” strategy, which will offer a green economic recovery package while at the same time put some meat on the bones of the EU’s aim to reach net zero emissions by 2050.
Specifically, the plan will propose a “recovery instrument” worth a half-a-trillion euros, according to Bloomberg, which obtained a copy of the draft document. Of that, between 60 and 80 billion euros would be aimed at boosting EV sales and building out EV recharging networks. EVs would be exempted from the VAT. Another 91 billion euros would go to retrofitting existing buildings. 10 billion euros would go to renewable energy projects. Around 30 billion euros would be funneled into technologies to cut emissions in sectors where it has been exceptionally difficult to do so, such as steel and cement.
“These sums would dwarf any green stimulus announcements to date and signal that the EU really wants to align its economic recovery strategy with the Green Deal,” said Victoria Cuming, head of global policy at BloombergNEF.
Meanwhile, at the national level, Denmark just announced a plan to build two giant “energy islands,” dubbed the world’s “most ambitious” offshore wind project, according to the FT. The 37-billion-euro project is a cornerstone of Denmark’s plans to cut emissions by 70 percent within the next decade. “Even though we are in the middle of an unprecedented health crisis, that doesn’t mean that the climate change problem is smaller. We are also in a climate crisis,” Denmark’s climate minister Dan Jorgensen told the FT.
The new spending measures come as Germany and France have separately reached an agreement on a version of a fiscal union, or at least, the first steps towards building such an outcome. That is, in an effort to hold the EU together, Germany and France have proposed a 500-billion-euro fund that will provide fiscal stimulus to struggling economies on the continent, such as Italy and Spain, both hit hard by the pandemic. The funds would be raised across the Union, but would disproportionately benefit the countries that need it most.
Economists have long argued that some of the eurozone’s deepest economic problems reflect the fact that the region exists in a monetary union but not a fiscal union. The arrangement creates instability, leaving Europe halfway between merely a free-trade zone and a fully integrated single economy.
But Germany has historically resisted a fiscal union, which would amount to redistributing money from North to South. The political risks have always kept the idea on the drawing board. But the pandemic has changed all of the rules. During past crises, the EU’s response has often been “more Europe,” not less. But Brexit slammed the brakes on the notion of deepening the European project. And the coronavirus has deeply divided the continent, with resentment building in southern Europe, where the economic and public health toll has been most concentrated. The worst recession in nearly a century, and all the political fallout that entails, could yet tear the EU apart.
But that’s exactly why Germany may be coming around to the idea of a more redistributive arrangement. It remains to be seen if a few holdouts (Sweden, Austria and the Netherlands, for instance) scuttle the proposal.
It is against this chaotic backdrop that the European Commission will propose its green recovery package. Europe is suffering through health crisis, an economic crisis and a political crisis. A Green Deal by no means is a silver bullet, but it does promise progress on multiple fronts.