Plan to Kickstart EU’s Green Deal Comes With $1 Trillion in Cash

(Bloomberg) -- The European Union will unveil next week an investment plan designed to mobilize at least 1 trillion euros ($1.1 trillion) over the next decade for an unprecedented shift to a climate-neutral economy.

The Sustainable Europe Investment Plan will be the financial pillar of the Green Deal, a sweeping strategy to eliminate greenhouse gases by the middle of the century. The European Commission, the bloc’s executive arm, wants to pull together a set of new policy initiatives with existing tools and ensure a coherent framework that will spur investment from every corner of the EU, according to a draft document seen by Bloomberg News.

“The EU budget and associated instruments will trigger at least 1 trillion euros of sustainable investments,” the Commission said in the document, due to be adopted on Jan. 14. “However, more will be needed to master the challenges ahead. Public finance needs to lead the way, but private actors will need to provide the scale.”

The Sustainable Europe Investment Plan aims to:

  • Increase funding for the transition, with the EU budget devoting at least 25% to climate, a record share
  • Ensure that financial institutions and private investors have tools to properly identify sustainable investment
  • Crowd in additional private funding through leveraging the EU’s budget guarantee; the InvestEU Fund will leverage 280 billion euros of private and public investment in 2021-2030
  • Turn the European Investment Bank into a climate bank; the EU’s lending arm will double its climate-related lending

Economic Future

The EU net-zero emissions strategy means staking the bloc’s economic future on an environmental clean-up in a move that’s far more ambitious than measures other major emitters are considering to tackle global warming.

The transition to climate neutrality would start this year and involve stricter emissions limits for industries from cars to chemicals, revamped energy taxes, greener farming, new state-aid rules for companies and possibly an environmental import tax. Everything from finance to the design of cities would need to become more sustainable.

With U.S. President Donald Trump set to pull the world’s biggest economy out of the Paris Climate Accord and China, the world’s biggest polluter, still building more coal power plants than the rest of the world combined, Europe is looking to seize the initiative in the global campaign to rein in the effects of climate change -- and betting that it will bring a dividend in terms of jobs and economic growth.

However, the costs of the EU transition are dizzying. Reaching the existing targets, which include reducing emissions by at least 40% by 2030 from 1990 levels, will require additional spending of 260 billion euros annually, according to Commission estimates.

Investments in sustainability are held back by regulatory uncertainty, a fragmented market, coordination failures and limited access to finance.

High Unemployment

The new plan includes the Just Transition Mechanism to help the most affected regions, a tool pushed for by several member states led by Poland. The mechanism will use financing from the EU budget, co-financing from national governments as well as contributions from the InvestEU and the EIB to reach 100 billion euros in 2021-2027.

The Just Transition Fund, one of the main elements of the broader mechanism, will get 7.5 billion euros from the EU budget and additional financing from national governments. It could have as much as 50 billion euros out of the overall total at its disposal, providing support to all member states to alleviate the social and economic costs of the climate transition.

“The Just Transition Fund will benefit territories with high employment in coal, lignite, oil shale and peat production, as well as territories with carbon-intensive industries which will be either discontinued or severely impacted by the transition,” the Commission said in the draft document.

To obtain support from the fund, member states will need to prepare plans detailing the transition process and specific actions to reach a climate-neutral economy.

The Commission is trying to convince Poland to reconsider its plans to be the only EU member state to reach climate neutrality at a slower pace, in the second half of the century.

©2020 Bloomberg L.P.

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