- By Chris Kremidas Courtney
At the height of the COVID-19 pandemic, European leaders broke a taboo by joining forces in a recovery plan of more than €800bn. Next Generation EU embodies the realisation that a common and coordinated European approach is the best response to systemic crises.
This historic initiative is a giant leap for the European Union, but a very small step for humanity and its preservation. As the latest Intergovernmental Panel on Climate Change (IPCC) report reminds us, the climate and environmental crises pose risks that could dwarf those of any disease. And there is no vaccine against climate disruption or biodiversity loss.
To avoid the worst, we need to act quickly and decisively by radically overhauling our production and consumption patterns, while respecting social justice. In concrete terms, we must carry out a profound ecological transition of our societies, based on three major pillars: regulatory adjustments to limit or ban harmful activities; fiscal adjustments to steer behaviour towards ‘clean’ business; and massive investments in infrastructure, R&D and training so as to be able to offer credible alternatives to the current polluting goods and services, in particular, in the fields of energy, transport, construction and agriculture.
Individually, member states are ill-equipped to achieve this necessary transition
Under the European Green Deal, the EU has committed itself to a 55% reduction in greenhouse gas emissions by 2030 and to becoming carbon neutral by 2050. Behind the ambitions, however, policy initiatives remain weak and Europe is seriously lagging behind in terms of green investments. In 2019, China invested almost €350bn in this area, nearly twice as much as the EU. And, on 15 November, US President Biden signed a $1.2tn infrastructure bill to combat climate change and its consequences.
According to the European Commission’s latest impact assessment, just to adapt our energy and transport systems, 3.7% of the EU’s GDP would need to be invested each year over the next decade. This represents a cumulative amount of more than €5tn. Another study carried out by the Foundation for European Progressive Studies (FEPS) estimates that, excluding the key transport sector, €10tn would be required for a successful ecological transition.
Individually, member states are ill-equipped to achieve this necessary transition: firstly, the fragmented nature of national policy landscapes undermines the ability of countries to develop long-term policy visions in the general interest of present and future populations. Secondly, neither the climate nor the environment has borders: responding effectively to these challenges requires joining forces, coordinating policies and preventing unfair competition as well as free riding. Thirdly, euro area countries are users of a currency they do not control and, as the 2010-2012 euro crisis painfully illustrated, they are individually subject to hard financing constraints. They are also subject to the rules of the Stability and Growth Pact, which limit public deficits and debt to 3% and 60% of GDP respectively, without distinction being made between current and capital expenditure. Finally, the multiplier effects of fiscal policies on aggregate demand are much higher when there is coordination across countries. These different elements plead in favour of a comprehensive common approach to the climate and environmental crises and a partial mutualisation of the costs in order to ensure a rapid, efficient and credible ecological transition for the EU.
The real challenge is to mobilise and effectively direct these resources towards this major challenge
In this context, we call on EU leaders for the European Commission to be rapidly tasked with developing an ambitious ‘European Transition Plan’ for the next decade. We also support a revision of the EU budgetary framework in favour of a green golden rule, so that public investments that fully contribute to the ecological transition are excluded from the calculation of the Maastricht budget deficits and the medium-term budgetary objectives (MTOs) of the member states.
Such a plan would require the creation of a dedicated ‘European Transition Fund’ of several trillion euros, which would be financed by a common loan, an increase in the EU’s own resources and an effective fight against fraud and tax evasion. It would be aimed at providing subsidies to member states for national investment or reform projects like Next Generation EU, but also at developing large common projects at EU level, such as high-speed railways and energy infrastructures. Only projects that fully and effectively contribute to the fight against climate change or the preservation of biodiversity would be eligible. The Commission would be responsible for closely monitoring the quality and the proper implementation of projects, in the same vein as for the existing Recovery and Resilience Fund.
The EU has all the human and financial resources to initiate an ecological and socially just transition of its societies. The real challenge is to mobilise and effectively direct these resources towards this major challenge. The EU’s legitimacy and credibility are at stake in its ability to provide itself with the means to fulfil its ambitions. The climate and the environment depend on it, but also the position of the EU in the world, its strategic autonomy and its ability to remain at the cutting edge of technology.
This article is part of our European Climate Pact series. The European Climate Pact is a movement of people united around a common cause, each taking steps to build a more sustainable Europe for us all. Launched by the European Commission, the Climate Pact is part of the European Green Deal and is helping the EU to meet its goal to be the first climate-neutral continent in the world by 2050.
Learn more about the European Climate Pact here.
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