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28th Nov 2022

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Outside shocks supercharge the EU Green Deal — for now

  • European Commission vice-president Frans Timmermans presented the Green Deal as a do-or-die moment in European history (Photo: European Parliament)
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European speeches rarely excite. The EU's lawmaking process is incremental and disjointed, and the stakes are often obfuscated by detail and too many acronyms.

But when European Commission vice-president Frans Timmermans, on December 13 2019, had to convince the European Parliament to approve the landmark Green Deal, Europe's overarching policy to become the world's first "climate-neutral bloc" by 2050, he brought out the big guns.

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  • The EU Green Deal was meant to solve the problem of political disagreement and paralysis among EU member countries (Photo: EC - Audiovisual Service)

"We choose to go for climate neutrality in 2050 and do the other things. Not because they are easy, but because they are hard," he said, adapting the 'Man on the Moon' speech by John F. Kennedy.

Wrapped in the pathos of past scientific, industrial and civic success, Timmermans presented the Green Deal as a do or die moment in European history. It would "organise and measure the best of our energies and skills," he said. "Because that challenge is one that we are willing to accept. One we are unwilling to postpone. And one which we intend to win."

It was meant to solve the problem of political disagreement and paralysis among EU member countries while also serving the external goal of projecting a unified image. By attaching it to the Cold War narrative of the space race — a symbol of the struggle between liberal democracy and authoritarianism — it presented Europe as a green soft power alternative to China, Russia and the United States.

As we now know, parliament approved the proposal — and even asked the commission to increase its climate ambitions further.

Climate change as national security issue

Fast forward to the first quarter of 2022 and with the onset of Russian president Vladimir Putin's invasion of Ukraine, gas prices are surging and calls to wean Europe off Russian gas have become louder and more persistent.

"Climate policy is now a matter of national security," an EU official told EUobserver.

At the time of writing, it is still unclear whether Europe will ultimately sanction Russian oil- and gas imports, given that Germany is especially reliant on Russian gas imports. But the new German Chancellor Olaf Scholz has already halted the controversial Nord Stream 2 project and the EU appears ready to double down on the Green Deal.

"The Green Deal is also the answer to the security challenge in the energy field," Timmermans said in the wake of the invasion. On March 8, two weeks after the Russian military offensive, the Commission presented plans to decrease Russian gas imports by two-thirds before the end of the year.

RepowerEU introduces some new measures. It will require gas storage across the EU to be filled up to at least 90 percent of its capacity by October 1 each year.

In addittion, it projects increased Liquified Natural Gas (LNG) imports from other countries, mainly the United States. It even encourages EU members to burn more coal temporarily.

And crucially, it requires member states to speed up the Green Deal, especially its emission reduction policies (dubbed "fit for 55").

Current policies would already decrease gas consumption by 30 percent by 2030.

By speeding up measures, to be paid for with existing pandemic funds, the commission estimates it can reduce Russian natural gas imports to 55 billion cubic meters before the end of the year, down from 155mcm last year.

Before the Ukraine war, there was the pandemic

Before the war, it was the Covid-19 virus which almost scuppered the Green Deal. Even as Timmermans was presenting his bid idea to the European Parliament in December 2019, almost 9000 kilometres away, a Wuhan resident surnamed Chen was the first human on earth to fall sick to the Covid-19 virus.

"Everything changed overnight," an EU official reflecting back on the first pandemic months told EUobserver. Unwittingly, "patient zero" launched a post-pandemic new normal, changing EU politics, and the Green Deal, along with it.

By setting the Green Deal up as a geopolitical tool, encompassing both domestic politics and foreign relations, a dynamic emerged in which uncertainty and the pandemic began feeding into and driving the Green Deal.

"There was a fear the pandemic would derail the Green Deal," an EU official said, with some EU leaders openly calling to "shut down" the Green Deal and focus on battling the virus.

But instead, the pandemic super-charged it.

Threatened by a total economic shutdown and by a lack of medical supplies, which it turned out were primarily produced in China, member states in rapid-fire mode agreed on a slew of policies that built on EU climate policies.

The most consequential was NextgenerationEU, a €750bn pandemic fund that would support governments by issuing joint European debt.

Much of these investments were meant to support citizens and boost the pandemic response. But one-third of this was earmarked for Green Deal investments, which together with the regulate seven-year budget added up to €600bn — more money the continent has ever spent on climate policy.

This collective action was coordinated by the commission, who pushed the Green Deal as the bloc's main growth strategy throughout the year.

EU banks joined in

This was supported by an unprecedented response from the European Central Bank, which promised to buy up all government debt (1850bn eventually) under its so-called pandemic emergency purchase programme (PEPP).

Financial institutions like the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) pooled their resources to help support pandemic stricken economies by spending a large part of their funds on climate action.

This set up a system of collective action between institutions and member states, now described by the EU as "Team Europe."

From a climate policy perspective, there is no question this approach has been successful.

By the end of 2020, even coal-reliant states like Poland recognised the need (and benefit) to decarbonise their economies with EU money, and agreed to increase the bloc's legally binding emissions reduction goal from 40 percent to a net 55 percent cut by 2030 — now enshrined in the European Climate Law.

Governments were seen propping up entire economic sectors, changing ideas of what governments and institutions should and could do — tied together into its central climate policy.

Reflecting on this moment in May 2021, EU foreign policy chief Josep Borell later said that Europeans are "masters of disjointed efforts." He added: "Each policy tends to develop according to its own logic and rhythm. The way to go is to use these instruments as part of one political strategy."

Uncertainy looms

Since its launch in 2019, the Green deal has become the EU's linchpin policy, tying together questions of stimulating and investing in the economy, responding to the climate crisis, and foreign policy threats. Questions like joint debt, huge fiscal and monetary crisis support and massive public investments in green infrastructure are now part and parcel of the EU's policy toolkit.

But even as some of its efforts have proven successful under pressure crises and conflict, it is unclear where it will lead.

For one, the future success of the Green Deal is almost wholly dependent on the availability of money. And there are signs that in addition to the impact of the Russian war, the period of massive monetary interventions and government generosity may be drawing to a close.

The ECB has already decreased its pandemic asset purchases. Although the bank has not yet signalled that it will increase interest rates, worries over inflation will pressure the bank's management to do so.

This will lead to an increase in borrowing costs for governments, while energy prices will by all expectations remain high. As a result, increasing investments in renewables is likely to become more difficult.

Italian Prime Minister Mario Draghi, who previously served as ECB president, has already called for a new version of the NextgenerationEU fund to pay for green investments and weather the financial fallout from the war by issuing mutual debt.

But opposition to joint European debt remains potent among "frugal" northern EU member states. Magdalena Andersson, the Swedish prime minister, recently warned that "some countries always find new arguments why they shouldn't pay their expenses." Such intransigence will complicate debates over revamping EU fiscal rules to be held this year.

Even if crises and conflict have driven the Green Deal forward in recent years, this may not continue to be the case in the future. Political will and determination can go just so far. The Green Deal has survived two major external challenges. But without sustainable long-term financial resources — either through governments' monetary financing or joint European debt — the EU's flagship initiative is at risk of impasse.

This article first appeared in EUobserver's magazine, War, Peace and the Green Economy, which you can now read in full online.
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