The European Green Deal – What is it and what’s next

Political and business leaders around the world have started to take action to fight climate change and prepare for the energy transition. Companies have pledged significant cuts in their carbon footprint and set goals to become carbon neutral over the next two to three decades. 

Beyond corporate-level commitments to a net-zero carbon footprint, governments in advanced economies pledge reduction in emissions in a once-in-a-lifetime opportunity to mitigate the already evident impact of climate change. 

In June 2019, the UK became the first major economy in the world to enshrine in law, its target to reduce greenhouse gas emissions to net-zero by 2050. This target will require the UK to reduce all greenhouse gas emissions to net-zero by 2050, compared with the previous target of at least 80percent reduction from 1990 levels.

“We’re pioneering the way for other countries to follow in our footsteps driving prosperity by seizing the economic opportunities of becoming a greener economy,” said Energy and Clean Growth Minister Chris Skidmore.    

What is the European Green Deal 

Several months after the UK passed the net-zero emissions target into law, the European Union (EU) unveiled its European Green Deal in December 2019, aiming to make Europe the first climate-neutral continent by 2050.  

The transition to carbon neutrality is both a challenge and an opportunity, the European Commission said, as it presented its most ambitious package of measures to date to help European citizens and businesses benefit from the transition to a greener future and economy. 

Under the Green Deal, the EU will support investments in green technologies, new businesses, and sustainable solutions.  

The European Green Deal is a response to the climate challenges the world faces and calls for raising the target for EU’s greenhouse gas emission reductions for 2030 to at least 50percent and towards 55percent compared with 1990 levels. This compares to the previous goal of 40percent decrease in emissions by 2030, while the target for 2050 is carbon neutrality. 

Current policies, however, are expected to only reduce greenhouse gas emissions by 60percent by 2050, according to the European Commission (EC) estimates.  

“Much remains to be done, starting with more ambitious climate action in the coming decade,” the Commission said in the plan.  

To achieve carbon neutrality by 2050, the European Union will need the support of all stakeholders and ‘greener’ legislation in national governments.  

The European Green Deal includes; boosting offshore wind power generation and nuclear power at the expense of fossil fuels; stricter standards for vehicles running on petrol and diesel; a move to smarter and increasingly electric mobility and; a Just Transition Fund to support with money packages the regions reliant on coal and carbon-intensive industries to diversify away from the heaviest carbon-emitting sectors.  

The European Green Deal also includes the possibility of introducing the so-called ‘carbon border adjustment mechanism’ to reduce the risk of carbon leakage if EU partners do not share the same ambition as the EU. 

“Should differences in levels of ambition worldwide persist, as the EU increases its climate ambition, the Commission will propose a carbon border adjustment mechanism, for selected sectors, to reduce the risk of carbon leakage,” the Commission said. 

The European Parliament supported the Green Deal and called for even higher ambitions at a session in January 2020. 

“MEPs welcome the European Green Deal and support an ambitious sustainable investment plan to help close the investment gap. They also call for an adequately funded just transition mechanism,” the Parliament said in a press release. 

MEPs want the upcoming Climate Law to include higher ambitions for the EU’s 2030 goal of emissions reductions - 55percent in 2030 compared to 1990, instead of “at least 50% towards 55%”- as proposed by the Commission. MEPs also want to include an interim target for 2040 to ensure the EU is on track to reach climate neutrality in 2050.

What’s Next for Europe in the European Green Deal 

To help carbon-intensive industries across the EU to transition to lower-carbon economies, the EU launched the Just Transition Mechanism (JTM) to provide targeted support to regions and sectors that are most affected by the transition towards the green economy. The EU will mobilise at least €100 billion in investments over the period 2021-2027 to support workers and citizens of the regions that will be most impacted by the transition.  

“We must show solidarity with the most affected regions in Europe, such as coal mining regions and others, to make sure the Green Deal gets everyone’s full support and has a chance to become a reality,” said Frans Timmermans, Executive Vice-President of the European Commission. 

Alongside the Just Transition Mechanism, the European Commission unveiled in January the European Green Deal Investment Plan to mobilise at least €1 trillion of sustainable investments over the next decade. 

“The transformation ahead of us is unprecedented. And it will only work if it is just - and if it works for all. We will support our people and our regions that need to make bigger efforts in this transformation, to make sure that we leave no one behind,” the President of the European Commission, Ursula von der Leyen, said. 

“The Green Deal comes with important investment needs, which we will turn into investment opportunities. The plan that we present today, to mobilise at least €1 trillion, will show the direction and unleash a green investment wave,” von der Leyen added. 

The road to becoming the first climate-neutral continent by 2050 must be paved with significant investment from both the public and the private sector, the European Commission says. 

“Public finance needs to lead the way, private actors need to provide the scale,” the Commission said in its brief on the necessary investments in a climate-neutral and circular economy.

What the Green Deal Means for Energy Firms and Carbon-Intensive Industries

But there are rebels in this Green Deal among countries dependent on fossil fuels, especially coal. For example, Poland, an EU member state heavily reliant on coal which accounts for nearly 80percent of electricity generation and where the coal industry is a major employer, has opposed the deal. 

The Green Deal is “an incredibly ambitious commitment,” WoodMac said in a report which described the pledge “a very deep line in the sand for climate change.” 

However, energy firms could come under pressure from the Green Deal, according to Valentina Kretzschmar, Wood Mackenzie’s director of corporate research. 

“Pressure on European fossil fuel producers to follow Repsol’s lead in committing to net-zero carbon by 2050 will continue to ramp up,” Kretzschmar said.

“And oil and gas exporters to Europe, including Russian gas and US LNG, could face a diminishing demand outlook and an impact on their revenues from carbon taxes,” she noted. 

While the oil and gas industry would be under pressure to make stronger carbon reduction commitments, providers of renewable energy and their associated supply chain are set to benefit from the European Green Deal. 

“renewables-based electrification will be central to a climate-neutral, competitive and secure energy system,” says non-profit association WindEurope, which groups 400 member companies, including the biggest renewable energy firms and suppliers in Europe. 

Wind energy is ideally placed to help Europe achieve its ambitious targets and ensure that the Green Deal works for all Europeans, the association said. 

“Decarbonising Europe represents a unique opportunity for a more prosperous, healthier and greener continent. And offshore wind energy in the northern seas plays an important role in a decarbonised European energy system,” Martin Neubert, CEO, Ørsted Offshore, says in the company’s white paper on the Green Deal. 

Europe’s Progress in Reducing Emissions So Far 

The European Union reduced greenhouse gas emissions by 23percent between 1990 and 2018, while the economy grew by 61percent during that period, the European Commission has estimated. 

In 2019, energy-related emissions in Europe declined, according to the new emissions report from the International Energy Agency (IEA) in February 2020. 

Last year, energy-related CO2 emissions in the European Union, including the UK, dropped by 160 million tonnes, or 5percent, driven by reductions in the power generation sector. Natural gas produced more electricity than coal in the EU for the first time. Meanwhile, wind-powered electricity nearly caught up with coal-fired electricity, the IEA noted. 

Germany led the emissions decline in the EU as its emissions dropped to levels last seen in the 1950s when Germany’s economy was ten times smaller. With a share of over 40percent, renewables generated more electricity than Germany’s coal-fired power plants in 2019, for the first time ever, according to the IEA. 

In the UK, the share of power generation from coal dropped to just 2 percent of all electricity generation, thanks to the rapid expansion of output from offshore wind from new projects in the North Sea, the IEA said. 

Despite the progress in emissions reductions in major economies in Europe, the European Union and the United Kingdom have a lot more work to do to reach carbon neutrality by 2050. Support from all stakeholders will be crucial to ensure the success of the transition to sustainable greener economies.   

Key Sources: www.gov.uk, ec.europa.eu, www.woodmac.com, orsted.com, www.iea.org, www.bbc.com, www.windeurope.org.