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Still waiting for the green leap forward

Franklin Roosevelt’s New Deal helped pull the US out of the Great Depression. Climate change is a bigger crisis and requires a similarly total response. But is the European Commission being ambitious enough? And will politicians, business and society accept the changes required? Jon Hay reports

The Green New Deal — a 10 year-old campaigning term for a comprehensive reform of economic and social policy to make society sustainable — has risen to prominence in the past two years, especially in the US, as consciousness of climate change has intensified.

“We need a global Green New Deal that is bold and attacks the climate issue like the emergency that it now represents,” says Steve Waygood, chief responsible investment officer at Aviva Investors. “As well as every regulator we need to call upon every organ of society, every central bank, every institutional investor, every non-governmental organisation and every individual to take strong action.”

The European Union is about to make the first attempt. When she pitched in July to be president of the European Commission, Ursula von der Leyen put a European Green Deal top of her agenda. Implemented ambitiously, it would shape business and financial markets, accelerating the transition to cleaner energy and reforming sectors such as vehicles, shipping, construction and agriculture.

A leaked draft of the policy was remarkably broad and far-reaching, although scant on detail: it consisted of one line bullet points, and there were many gaps. Already, there are signs of the battles to come over how fast the EU can move.

Central to the Green Deal is passing a law by March 2020, requiring the EU to achieve carbon neutrality by 2050. Since 2014, Europe has been committed to cutting greenhouse gas emissions by 40% from 1990 levels by 2030. The Green Deal would raise that target to “at least 50% and towards 55%”, with a plan on how to do this by October.

In July, von der Leyen announced a €1tr Sustainable Europe Investment Plan. “A huge question is… is there fresh money on the table?” says Sébastien Godinot, economist in the European policy office of WWF.

The EIB plans to “support €1tr of investments in climate action and environmental sustainability” in the decade to 2030. But that would only be about a 45% acceleration on the pace of its financing since 2012. Meanwhile, fossil fuels are subsidised in the EU to the tune of $289bn in 2017.

Worryingly, in Godinot’s view, the draft Green Deal policy does not mention the sustainable investment plan at all.

WWF has set five tests for the Green Deal: it must set targets for both decarbonisation and preserving biodiversity; make food sustainable; have zero tolerance for non-compliance; stop financial support for harmful activities and make finance support sustainability; and ensure the transition does not impoverish disadvantaged groups.

A Just Transition Fund is promised to help regions affected by abandoning coal. But the private sector will have to contribute. Enel, the Italian electricity company, has redeployed workers from closed coal plants and refashioned the sites for new economic uses.

“We have cut, starting from 2015, about €1.5bn of costs — have you heard anything about social problems?” says Alberto de Paoli, Enel’s CFO. “That’s because we managed things not to impact people. The Just Transition is a big opportunity, but we have to do our bit to make sure it’s really an opportunity for all.”

The Green Deal will produce a new action plan on green financing in June 2020, building on the 2018 Sustainable Finance Action Plan. 

Kate Levick, sustainable finance lead at the thinktank E3G, says the Commission’s thinking is wide open and there is “very much to play for”. She hopes the plan will include stimulus measures. “If you are doing economic stimulus, you should not just be doing short term, non-green projects, but think about how to use it for the transition,” she says.

Christine Lagarde, new president of the European Central Bank, is making climate change “mission-critical”. This could include skewing ECB asset purchases away from bonds of polluting companies and towards cleaner firms or green bonds. But this would do little to speed up the transition: it is not being held back by a lack of bond demand.

Much more difficult is planning the transformational projects needed and bringing them to financeable states. Member states must produce National Energy and Climate Plans about this.

“The first drafts were mostly awful,” says Dörte Fouquet, director of the European Renewable Energies Federation. “They were all hiding under the table in terms of giving figures.” 

Final drafts are due by the end of this year. They will give the first concrete sign of how likely the Green Deal is to become a reality.   GC

Photo displayed on website: Copyright European Union 2019 Source EP, CC BY