On 11 December 2019 the European Commission presented the European Green Deal, a roadmap to reach climate neutrality by 2050. What it announces and what it may mean for businesses.
On 11 December 2019, ten days after taking office, the European Commission led by Ursula von der Leyen presented the European Green Deal, a roadmap for making the European Union’s economy sustainable and turning the continent into the first climate-neutral one by 2050. It is not a law but a communication: a framework that announces the legislative proposals that will arrive over the coming months and years.
What it announces
The plan covers every sector of the economy, especially transport, energy, agriculture and buildings, and industries such as steel, cement, information technology, textiles and chemicals. To put the 2050 neutrality goal into law, the Commission will present the first European Climate Law within 100 days, scheduled for March 2020. It will also start work at once on raising the 2030 target, currently set at a 40% cut in emissions compared with 1990. The roadmap speaks of taking it to at least 50% and towards 55%, with a plan and an impact assessment to be presented in the summer of 2020.
Among the initiatives to come are the revision of the EU emissions trading system, which could be extended to road transport, shipping and buildings; a new industrial strategy and an action plan for the circular economy; a biodiversity strategy for 2030; the “Farm to Fork” strategy for sustainable food; and, in the second half of 2020, a clean mobility strategy.
How it would be financed
The Commission estimates that meeting the current climate and energy targets for 2030 requires about €260,000 million of additional investment every year, around 1.5% of 2018 GDP, to be provided by the public and private sectors. In early 2020 it will present a Sustainable Europe Investment Plan and proposes that at least 25% of the EU’s long-term budget be devoted to climate action.
To mobilise private capital it is preparing a green financing strategy for 2020. And for the regions that depend most on high-emission activities, such as coal, there will be a Just Transition Mechanism, with a Just Transition Fund, which aims to facilitate €100,000 million of investment in the Union’s next budget period and will support the retraining of workers.
What it means for businesses
The first effect is predictability: the Commission argues that a long-term vision will give companies more regulatory certainty to invest in modernising and reducing their environmental impact. The second is cost and competitiveness. Transport, energy, buildings and heavy industry are the areas the plan singles out as priorities, and that is where the new requirements will be concentrated.
So that European companies do not lose competitiveness against countries with less demanding climate rules, the Commission will study a carbon border adjustment mechanism, as an alternative to the free allocation of emission allowances that today protects some industries. It is an idea and not a proposal: its design is not yet known. The plan also needs the backing of the European Parliament and the European Council, which meets on 12 and 13 December; according to published reports, Poland has not yet signed up to the 2050 goal. Concrete legislative proposals will follow, and they are what will set the obligations and costs for each sector.
A company can start by finding out its energy use and emissions, whether its activity falls within emissions trading, and what environmental criteria its customers, suppliers and lenders are beginning to ask of it. Ask your adviser how it may affect your sector.
The Green Deal sets the direction; the concrete obligations will come with the laws of the coming months.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
