The European Green Deal (EGD), announced on December 11th, sets a 2050 target to make the continent become the first to achieve carbon neutrality. It’s a long-term plan – not yet law – to re-design all EU instruments and includes 50 specific policy initiatives. But nobody yet knows how much money is needed, who will pay (or lend) it, and who will get it. So tense discussions will now begin between the likely payers (such as Germany, the Netherlands, Austria, Italy, Sweden and Denmark) and the likely recipients (such as the Central and Eastern European region, Greece, and others). Frank Umbach at the European Centre for Climate, Energy and Resource Security runs through the EGD strategy, the estimated costs, and the arguments already being made. No agreement will be reached until all sides believe their burden – be it financial or re-skilling redundant workforces – is fair, security of energy supply is assured, and their economies keep growing.
The European Commission has announced a “European Green Deal” (EGD) on December 11, which would make Europe collectively the first carbon-neutral continent by 2050. The goal of the “man on the moon moment”-project (so President Ursula von der Leyen called it) is based on a comprehensive growth and innovation strategy for all economic sectors in Europe in support of its ambition for reducing the greenhouse gas (GHG) emissions.
The EGD is not yet a legislation, but a long-term plan and a centrepiece strategy for reconciling “the economy with our planet”. It is re-designing all EU instruments and includes 50 specific policy initiatives. In March 2020, the European Commission will propose the legal objective to achieve net-zero GHG emissions by 2050.
Later in the summer of 2020, it will also reveal a detailed plan for increasing the GHG emission reduction from previously agreed 40% up to 50-55% for 2030 (compared with 1990 levels). Germany’s influential Federation of German Industries (BDI) has already warned that the newly declared emission targets could “unsettle” businesses and consumers.
The true cost has not yet been calculated
As during the last years, declaring new ambitious targets and objectives is one thing, financing and implementing them is another one. Up to now, the European Commission itself is unable to specify the additional financial needs. But it has promised €100bn of an expanded ‘Just Transition Fund (JTF)’ for implementing the EGD and thus hoping to overcome the objections of Poland as well as other Central and East European (CEE) countries.
€260bn of additional annual investments?
According to some estimates, for meeting the existing climate and energy targets, the EU needs up to €260bn of additional annual investments, which are not yet sufficiently mobilised. President von der Leyen has also proposed a ‘Sustainable Europe Investment Plan’ of the EIB to unlock €1 trillion of private and public green investments until 2030. An “action plan on green financing” will be submitted in June 2020.
The present 2019 EU budget, however, amounts just to €166bn, of which 39% is attributed to “sustainable growth and natural resources”, but includes huge agriculture subsidies. The EU’s new budget for 2021-2027 requires up to now a national contribution of 1.07 percent of each member states’ gross national income instead of 1.11 percent originally proposed. In result, it may widen the gap between its presently proposed budget and the Commission’s newly unveiled EGD.
Who will pay and how much?
The lines of conflict between the member states have split the discussion in two camps: the net-contributors (providing more budget funds than they receive) such as Germany, the Netherlands, Austria, Italy, Sweden and Denmark and the net-recipient countries (including Greece, CEE region and others). At least the European Commission will raise its funding for climate change efforts to 25% (€320bn) of the total budget compared with 20% (€206bn) over 2014-2020 as part of its proposed ‘Multiannual Financial Framework for 2021-2027’.
Economic crosswinds are not helping
Given the newly declared targets, the financial implications will be far more challenging. This is not only due to the direct impacts of the new targets, but also due to the fact that the international conditions of the global economy have deteriorated by weakening the global and European GDP growth. Furthermore, the UK’s Brexit will decrease the annual funding of the EU’s by more than €12bn (net-contribution: £11bn in 2019). It remains to be seen how these international ramifications will impact the discussions as well as decisions on the funding sources and instruments.
The Just Transition Fund
The JTF has been created to complement the existing Cohesion Funds for the social as well as structural transition of the EU’s coal regions to phase-out their coal production. At present about 50 regions in 18 EU countries will be eligible for financial support, after the number of regions and scope has been widened beyond the coal challenge – a development Poland and others have opposed. A major component for targeting “the most vulnerable regions and sectors” is to create new jobs, provide job training and promote development of new industrial sectors in those countries and regions that still rely heavily on coal production such as Poland, Hungary and the Czech Republic or have a low GDP per capita level such as Romania, Bulgaria and Greece.
Grants or loans?
The promised figure of €100bn for the JTF is almost three times of the draft €35bn of it. But it has been criticised by Poland and other CEE countries over how much of this funding would actually be ‘fresh money’, which would be non-returnable, instead of loans or guarantees.
How much will Poland need?
McKinsey has estimated that Poland needs investments in its power generation assets alone up to €150bn until 2050. The Polish government has defined an investment list for the EIB’s JTF, which goes up to at least €578bn of energy projects by 2030. In this light, the €100bn of the JTF won’t be enough for funding the countries’ costly energy transformation – particularly if the majority of this amount will be returnable funding. It may increase the debts of the poorer countries and undermine their economic competitiveness. The European Commission itself has estimated investments amounting up to €180-290bn annually until 2050 in order to achieve the 1.5°C target of the Paris Agreement.
The return of nuclear?
In addition to the huge funding needs not just for Poland and the CEE states, these countries together with France and UK have called to include nuclear power as a clean energy source as otherwise the EU’s GHG emissions reduction by 50-55% in 2030 cannot realistically be achieved. But other countries such as Germany, Austria and Luxembourg have opposed it.
For sealing the EGD, the EIB’s JTF needs to be linked up with other banks’ lending policy, which will increase the level of co-financing available for certain member states from 50% to 75%. 10 EU member states (Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia), participating at the EU’s Emission Trading System (ETS) and eligible of the Modernisation Fund, will also benefit from the higher level of co-financing.
By including the shipping and aviation sectors, the ETS will make more than €26bn available over the next decade. When discussing the adoption of the 50-55% CO2 emissions reduction target by 2030, compensation mechanisms, such as the Modernisation Fund, should be proportionately increased in the view of those countries to make sure that additional costs are fairly shared among member states.
The political discussions of the funding needs, instruments and sources have just begun and will heat up in the forthcoming months and years. Political objections won’t just come from Poland and other CEE countries. Also Germany and other EU member states will raise objections, particularly in regard to specific funding sources and instruments.
A new carbon tax for the EU has already been proposed, though it is not a popular idea in the view of most member states. Also the idea of a more active role of the European Central Bank in fighting climate change has been opposed as this is not its mandate and would overlap with the role of governments.
Thus the challenges of funding the EGD may remain the hottest issue in the debates ahead and should not be understated: the EU’s climate policies and targets risk polarising the societies of its member states and undermining security of supply and economic competitiveness if those policies and benefits are not sufficiently balanced.
Dr. Frank Umbach is Research Director of the European Centre for Climate, Energy and Resource Security (EUCERS), King’s College, London
Peter Poptchev says
Congratulations to Dr. Umbach for having thrown initial light on the intricacies of financing the EGD. He provides persuasive data and analysis to substantiate the somewhat alarming conclusion in the very last paragraph. Implementing the EGD will be an uneven battle with tradition, inaction, skepticism as well as vested political and economic interests with links to major oil and gas importers. I know a member state, which has an Energy Efficiency Agency but practically no energy efficiency sector: both indigenous and foreign EE-specialized companies have been squeezed out of the market by the “fuels lobby”. The new EGD-related legislation should involve robust reporting and monitoring mechanisms, including on-site visits and an exchange of best practices. This will produce a healthy real-time assessment of successes and failures in each member state and will help the institutional and private providers of grants and lenders to control the flow and level of performance of (scarce) funds. There should also be an EU-wide increase of public awareness and transparency on EU-led measures taken. In other words, the EU citizens (hitherto treated mainly as customers) should be much more involved in the non-political, technocratic, aspects of energy and climate related initiatives than now. The idea that the EGD will cope with both the energy transition and climate mitigation benchmarks and the even grander goal of successfully implementing a new EU growth and jobs strategy needs a truly EU-wide social and political basis.
Frank Umbach says
Dear Peter, I fully agree with the comments. As I concluded in my article, withou the support of teh social and political basis I fear a further polarization of the societies on more ambitious climate policies (even in Germany). These concerns might even increase in the years ahead as I don’t see that other may emitters such as China, the US, Russia, India, Arab and many African oil and gas producing countries will really follow the EU example with much more ambitious climate policies. The gap between global climate policies and the real global energy trends are widening and not decreasing. The recent failing climate summit is just one proof of that. I find it very naive to believe that China (working on China’s energy and climate policies for morethan 20 years) and other countries follow the European example with an own “Green deal” and threaten their economic growth strategy. China’s expansion of renewables and air protection policies, for instance, have nothing to do with the Paris Agreement and global climate policies.
John Daglish says
If it was a war the money would be found !
Nuclear is a red herring as in the immediate 8 year and short term future 15 year nothing can be built, or designed and approved by the certifying authorities .
Certainly SMR (small modular reactors) of whatever type are a proliferation disaster ready to happen and an easy terrorist target especially effective when built in urban areas. Fusion is always 20 years too late !
We have 8 years to really reduce our CO2 and the tools are in place to achieve this if the political will was harnessed.
We managed to spend billions of euros every year bailing out the banks since 2008
see https://en.wikipedia.org/wiki/Quantitative_easing#Eurozone_and_Switzerland with quantitative easing (printing money out of thin air) resulting in rising asset prices (shares, property) that enriched bankers with little trickle down and widening inequality. This money could have targeted on bringing down household debt (debt jubilee) and investing in the renewable transition which would have kick started the economy instead of our current economic stagnation. see http://econintersect.com/pages/opinion/opinion.php?post=201803071950
Nigel West says
Nuclear is not a red herring. Not closing perfectly good ones in Germany is needed – the debate is underway. Let’s hope they reverse the closures.
“Germany was wrong to abandon nuclear power, the energy spokesman for Angela Merkel’s party has said.”
SMRs will be designed approved and sited in suitable locations. Renewables and Nuclear are both essential tools needed to tackle the grave problem of climate change.
If you take into account that the most organised nation, the Japanese, were not able to prevent an accident shouldn’t we be thinking twice? Imagine nuclear in less organised country (trust me I come from a much less organised country).
Frank Umbach says
The Fukushima catastrophe could have been prevented if the Japanese government and the operator of the nuclear power plant had not disregarded the regional conditions and the historical experiences with similar tsunamis before hitting this Japanese regions. The Fukushima nuclear power plant was a very old one and imported from the U.S. Alongside of the power plant, US safety and security measures had been implemented in the Japanese region without taking the different sea level and potential tsunamis taking into account.
But of course, the different national security culture and experiences as well as safety and security regulations need to be taken into account – particularly of less organised and experienced countries for makinga dequate decisions on building new nuclear power plants.
Peter Poptchev says
My intention was to highlight the financing issues of the EGD, so expertly presented by the author of the article. However, a number of comments touched on nuclear energy, and this is indeed one of the important EGD-related issues. A number of Central and Eastern (South Eastern) European MS, in addition to France and the UK, insisted on a permissive EGD attitude (regulation) to nuclear energy. The CEE countries in particular have substantiated their interest in nuclear power as (the only) way of compensating for the closure of their polluting coal/lignite-based power plants. Serious analysts imply that the world, and the EU in particular, have only about 8 years to reverse course if they want to reach the 1,5 Degrees C target. In his comment above, John Daglish seems to agree and goes further to suggest that in the next 8 years and perhaps much longer no new NPP can be built, designed or certified in the EU while within the same limited time-frame most if not all coal/lignite fired power plants in CEE should be closed down or be penalized to an extent that these MS cannot really afford. Can we make the conclusion then that the planned NPPs in CEE cannot be built or approved in time for them to allow the preceding or simultaneous closing down of thermal power plants (TPPs) ? If a substantial time gap between closure of TPPs and commissioning of new NPPs will occur in some or all affected CEE countries, how (on what source) would they be able to generate the missing energy? There should be an expert debate on the issue. Such a debate should have been held within the Energy Union framework however the EU officials responsible for this strategy did not put in much effort so far as Central and Eastern Europe was concerned. Perhaps Energy Post would find a proper context for stimulating such a debate. It would not be unrelated to the financing aspects of the EGD.
John Daglish says
It will be difficult but renewables can cover the shortfall provided that energy saving measures and alternative vectors to electricity such as district heating are implemented. They are quickly built, and liquid and gaseous renewables from a variety of sources… methanisation, gasification, P2G, P2L eg hydrogen, methanol, ammonia can provide stored fuels for the occasional low renewable supply in winter with relatively cheap combustion plant and/or fuel cells as they scale. Batteries can do short term frequency control and balancing but are at the moment too costly and not big enough for multi-day /week long shortages. Distributed power production with blockchain sharing with for example solar PV and a little storage with energy efficiency can provide near independence for domestic buildings in the quartier. Ultra vacuum combined small solar water panel and PCM store can provide most DHW ~90% perhaps with a small <500W heat pump for bigger users, see TVP Solar.
The Danes are building such a system :
Smart Energy Systems: 100% Renewable Energy at a National Level (video)
Renewable energy system scenario Denmark (Enerplan technical & cost model)
Because of the short time scales nuclear is of no help (and for all the other reasons – proliferation risk, cost, terrorist target, high tech dependence, continual deliberate or accidental emissions, waste disposal, catastrophic unforeseen disaster …) !
Frank Umbach says
I have alwys been against an early phase-out of nuclear power plants in Germany as I could never really understand the arguments in favour of it – and particularly not using the example of the Fukushima catastrophe (I have also worked and published on Japan’s energy and nuclear policies even before the Fukushima event). But I’m sceptical in case of building new nuclear power plants in Europe and beyond for economic reasons as it is hardly possible without massive state subsidies. Whether small nuclear reactors will change this economic rationale, remains to be seen. In this cost calculations, the mostly underestimated costs for storage and decommissioning (as we just experience in Germany) have always calculated much too low and need now to be covered by the consumers and the state (in contrast to the original intention that those costs must be calculated in by the companies operatoring the nuclear power plants) .
Peter Poptchev says
Happy New Year!
With the follow-up comments by Mr. Daglish and Dr. Umbach the debate on the economic and technical aspects of building new NPP – as replacements of soon-to-be closed down coal-fired electricity generation capacity in CEE – has actually begun. It would be ideal if representatives from CEE Member States were to join the debate and provide their arguments. While each MS is free to choose its own energy mix, now that the EU would be taking care of the financial burden of implementing the (system disruptive) EGD an “internationalised” professional debate, within the EU, would be timely and most desirable and would (should) not be seen as interfering in national strategic energy decisions. Once started, the debate will of necessity extend to other related topics such as the updated national energy and climate plans, national economic and industrial development programmes, etc. CEE Member States have in principle large pools of experienced and forward-looking professionals whose capacity is however not used sufficiently because their previous centralised R&D infrastructure was abolished without erecting a new one based on academic-business and market relationships. EGD opens up, indeed requires, CEE MS to engage in the Union-wide energy transition process. Besides, what banker, disbursing institutional or private funds, would authorize financing an EGD project in CEE if that project were not fully substantiated, including in the eyes of peer entities in Western European countries whose energy systems have already covered the same ground.
Gruppo economia verde says
Contrary to the wrong statement made by the author, Italy is the second net contributor to the EU budget. Could the author explain why he’s got such important fact wrong?
Frank Umbach says
Many thanks for drawing the attention to an indeed factual failure, though Italy is the fourth-largest (not-second) largest net-contributor (after Germany, UK and France) to the EU-budget. Although I know it of course, it may have happened when I had shortened and updated the article before sending it to the editor.. And in this process, the failure may have happened. But again many thanks for the information. Will ask the editor for correction.