Economic recovery compatibility

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CLAIRE HOLLIER

Economic recovery compatibility with the re-launch of the European Green Deal

The COVID-19 pandemic has revived our reliance on single-use plastics notably polystyrene. The way people and industries have faced the pandemic was to prioritize hygiene over environmental concerns - at least under panic mode. According to Bloomberg, two major companies that make polystyrene products, Ineos Styrolution and Trinseo, have seen ‘double-digit percentage sales increases in the food packaging and health-care industries’ through February, March and April 2020. As some industry leaders told Bloomberg, they suspect the trend will abate once the pandemic ends.

Similarly, amidst the pandemic, in terms of policy prioritization, climate change policy took the back bench and became secondary to health and economic policies. However, despite the COVID-19 crisis, the urgency of climate change mitigation has not dissolved.

Far from it – though there is an increased perception that economic recovery post-COVID would come at the expense of positive climate neutral actions and risk a heavy blow to efforts to ‘bend the curve’ of greenhouse gas emissions in line with the goals of the Paris Agreement.

Notoriously, the Czech Republic and Romania called for scrapping the Green Deal to divert the funds towards supporting national economies and health systems. On the same lines, Poland suggested to discontinue the EU Emissions Trading System (ETS) from next year onwards. Such calls and suggestions to scrap existing climate policies and strategies, fall short of farsightedness. It is not like climate change has vanished or been resolved with coronavirus.

So how will the economic recovery, post-COVID pan out for the survival or otherwise of the European Green Deal?

Essentially, the Green Deal, presented by the Commission in December 2019, is a roadmap for making the EU’s economy sustainable by turning climate and environmental challenges into opportunities across all policy areas and making the transition just and inclusive for all. It is a set of actions to boost the efficient use of resources by moving to a clean, circular economy and stop climate change, revert biodiversity loss and cut pollution. This Deal covers all sectors of the economy, notably transport, energy, agriculture, buildings, and industries such as steel, cement, ICT, textiles, and chemicals.

It seems that the EU Commission has reignited attention and put back on track its efforts on the Deal. The aim is for the EU’s Green Deal to support the general post-corona economic recovery and put the EU’s decarbonization progress back on the Member States’ priority list. It is important to align economic recovery measures with global climate change, so that stimulus funds will be directed to flow into economic activities that have a place in a climate-neutral world. In simpler terms, post-corona economic recovery should be compatible with climate neutrality objectives and the economy should be directed towards more environmental efficient measures.

The re-launch of the European Green Deal may offer a unique opportunity for the EU to live up to the Green Deal’s promise of economic modernisation along the Paris decarbonisation objectives. And it does make sense. Climate policy may no longer be the first priority of the EU, but to re-embark on a high-carbon future development pathway should not be seen as a viable economic strategy for exiting the crisis.

It is important to align economic recovery measures with global climate change, so that stimulus funds will be directed to flow into economic activities that have a place in a climate-neutral world. In simpler terms, postcorona economic recovery should be compatible with climate neutrality objectives and the economy should be directed towards more environmental efficient measures.

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Earlier this year, the Brussels-based think-tank Centre for European Policy Studies, published a paper backing the EU Commission’s refusal to scrap the proposed EU Climate Law to address the public health crisis. The Climate Law if adopted would embed the EU’s climateneutrality target for 2050 into EU legislation. It is precisely aimed to shield the ‘generational challenge of climate change’ from more pressing and immediate priorities. The Climate Law itself, has the potential to strengthen EU climate policy governance, which is likely to be indispensable for reaching EU climate objectives. However, in the context of the current economic crisis, there is a risk that Member States would lack appetite to give the European Commission its desired powers to amend climate trajectories by delegated acts as envisaged in the Climate Law. The suggestions by Poland, Czech Republic and Romania to slow down climate ambitions may point towards the potential challenges the Commission could face in managing energy and climate policy through National Energy and Climate Plans in the absence of binding national targets.

In its position paper of June 2020, ‘What trade can do for climate’, BuisnessEurope contemplates how trade policy can uphold climate

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neutrality objectives. In April 2019, BusinessEurope had published its energy and climate strategy and explained five key framework conditions and related actions on how climate neutrality could possibly be achieved by around 2050, the last condition of which concerns the climate actions taken by other major economies. The organisation calls for the EU to define ‘the right balance’ so as not to undermine the Union’s competitiveness at global level. It regards that it is vital for the European Green Deal to take a systematic and holistic approach to the trade and climate agenda. BusinessEurope argues that ‘the sustainability triangle of climate action, competitiveness, and security of supply of energy and critical resources remains central’.

With this triangulation in mind, BusinessEurope highlights that it is crucial to maintain well-functioning instruments such as the EU ETS, in order to protect competitiveness and minimise the risk of carbon/ investment leakage. Whilst recognizing that trade agreements can help incentivise a level playing field in the environmental area, BusinessEurope warns against an overburdening of the EU’s trade agenda which could come at the expense of the EU’s negotiation leverage on its core economic interests. In this sense a delicate balance needs to be found on how to use trade as leverage for climate goals while not scaling back on the economic purpose of the trade agenda. The organisation deems that more weight should be laid onto solutions at multilateral and plurilateral levels, such as unblocking the Environmental Goods Agreement (EGA) or stimulating the functioning of global value chains, or harmonising standards and regulatory frameworks in collaboration with non-EU Member States. Furthermore, trade agreements could promote green foreign investment in the EU or develop green public procurement, among other avenues, in line with the Green Deal.

As regards any unilateral action, such as the Carbon Border Adjustment Mechanism (CBAM), any instrument needs to be devised in a way to avoid trade distortions or reduce the EU’s competitiveness.

It is thus imperative that the impact assessment studying a first version of the CBAM considers sustainability and EU competitiveness and explores potential alternatives. Specifically, for island states heavily dependent on importation, the impact assessment should address the heterogeneity of peripheral economies.