EU recovery plans are green

The latest EU Commission proposals for €750bn in additional borrowing and more spending by the bloc are based on the Green Deal project.

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  1. Charles Stanley

Originally planned to boost growth and cut unemployment through green investment, the Green Deal is being relaunched as a way of helping recovery from the depths of the Covid-19 recession. Commission President Ursula von der Leyen, who wooed the Greens and centre-left parties to secure her job, will be under increasing pressure to deliver on the anti-global warming strategy she set out to win her position.

The Greens are very keen not to let the Covid-19 crisis go to waste. They are drawing attention to the way in which the temporary large reductions in car and plane travel have cut harmful emissions, slashed carbon dioxide output and produced a quieter and gentler environment for many people.

They wish to see green policies strongly reinforced to prevent a return to big oil in many areas. They want to see more vehicle road converted into cycleways, more main roads changed into slower-speed mixed-use highways, fewer people travelling on planes, more organic farming and less use of chemicals and plastics throughout economies. They want to see oil users charged more through carbon prices and higher taxes. Some elements of big business support the climate change agenda and is pressing for its symbols, the electric car and renewable power, to be given a further boost from government R&D and subsidy.

Green leadership

The EU is the one large world economy that wishes to offer leadership in this area. The compromise suggested over whether the EU can borrow more on its own account, which will need to be backed by all the member states, entails a proposal to borrow up to €750bn during the next seven-year budget period. The EU will pledge the taxes coming in to pay for the budgeted spending.

To raise this sum, the EU is seeking permission to have a substantial increase in EU level taxation on the member states and citizens of the Union. It aims to increase the total to 2% of National Incomes from the current 1.2%. It is working up proposals for more directly-acting EU taxes. These include a higher Emissions tax, a carbon border tax, a digital tax and financial transactions tax. The carbon border tax will be a levy on imports from outside the EU coming from places that do not meet the EU’s green targets. This will be controversial with trading partners.

The EU has not yet resolved the bigger issue of how much fiscal stimulus member states themselves are allowed on top of the beefed-up EU budget and borrowing. The Treaty rules limiting each state to a maximum 3% annual deficit and a 60% of GDP ceiling on total government debt remain in place, but there seems to be a general acceptance that the recent anti-Covid-19 policies inducing a deep recession will require leeway.

Countries will be allowed a larger cyclical or anti-virus deficit for a bit. The fact that the EU itself sees the need to raise taxes in order to underwrite its proposed extra borrowings is a reminder of the Teutonic balanced-budget ethos that is still an important part of the EU architecture.

Action plan needed

The Green Deal has still not been translated into a complete action programme. There are many targets to hit. The main target to reach net-zero carbon by 2050 is now buttressed by a 2030 target of a 50-55% reduction on 1990 levels, with arguments still going on about how tough to be.

There is a target to halve the use of pesticides and to cut the use of fertiliser by 20%. There is a target to get to 25% organic farming. There are various targets for electric vehicles and renewable energy. By this year they are pledged to produce one-fifth of energy requirements from renewables, stepping this up to 32% by 2030. 10% of all transport is to be renewable-powered by 2020. There are also plenty of different funds and initiatives, with plans to boost R&D into green technology and the circular economy, and funds to ease the transition for adversely affected, oil-using industries.

The investment message is clear

The EU will be trying to force the pace of change away from petrol and diesel cars, away from jet travel, away from heavy industry and factory farming. It will be looking to promote electric cars and low energy homes, using subsidies and taxes liberally. The latest seven-year budget proposals still leave the €1 trillion green economy plans dependent in part on private capital and member state government spending, but they have just been given a boost by the EU level borrowing and tax plans.

The big hit to traditional car, steel, plastic and chemicals output from the virus is seen by some of the EU’s green supporters as a sharp move in the direction they wish to go in. They will want to reinforce their policies at this point of maximum weakness in the oil-based economy.

It reinforces the moves markets are making away from traditional model businesses towards those that score well in this greener universe. The EU will be monitoring, regulating and taxing accordingly. The problem is the jobs and extra output won from electric cars and wind farms are unlikely to make up for the scale of jobs now being lost from the collapse of the carbon economy under the twin pressures of the virus-induced recession and the tax and regulatory policies being pursued against it. Relatively high unemployment and low underlying growth will continue to blight the region.

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