Quarter of €750 billion EU rescue package will be green

Stephen Rae writes the EU’s updated seven-year €1 trillion budget proposal and today's €750 billion recovery plan both focus on transition to green and digital economies.

DUBLIN (Callaway Climate Insights) — A quarter of the €750 billion pandemic rescue package announced Wednesday by the European Union will have “green strings” attached.

The rescue package is a full €250 billion more than commentators had been expecting and 25% of the full package has been set aside to tackle climate change, European Commission President Ursula von der Leyen confirmed.

“The recovery plan turns the immense challenge we face into an opportunity, not only by supporting the recovery but also by investing in our future: the European Green Deal and digitalisation,” she said.

Significantly, the EU’s updated 7-year €1 trillion budget proposal and today’s €750 billion recovery plan both have transitions to green and digital economies at their heart.

Shortly after von der Leyen revealed details of the rescue to the European Parliament in Brussels Wednesday morning, Climate Change Commissioner Frans Timmermans said: “The recovery we propose will deliver the society that this and next generations need — clean, prosperous, resilient. Where nobody is left behind.”

The rescue package, called Next Generation EU, allocates the funds according to how severely countries have been affected by the pandemic and its economic impact, with the largest chunks going to Italy, €81.8 billion; Spain, €77.3 billion, and France, €38.8 billion.

In a briefing to Callaway Climates Insights, a commission spokesperson outlined how the public recovery investments should follow a “do no harm” principle and follow EU energy and climate priorities.

Pension funds and asset managers at the Institutional Investors Group on Climate Change (IIGCC) said the measures were very welcome. A green recovery is “the only option” in deterring  investments that would risk “fueling the climate crisis for decades to come,” the group said.

“The European Green Deal is Europe’s growth strategy” and should promote “competitive sustainability,” the commission spokesperson said, adding that investments in large-scale renovations, renewables, clean hydrogen and transport will all help boost economic growth.

Loans and grants distributed to EU member states under the recovery fund will need to support “investments and reforms” in the applicant country, an EU official explained, saying green aspects will be part of the criteria.

Green criteria will also apply to the so-called solvency instruments aimed at shoring up companies in need of liquidity.

“The philosophy is very much helping the economy to recover. But we want the economy to recover in a certain direction, which is green, digital and more resilient,” the official explained.

Any request to tap into the fund “must be signed off by the commission and the council,” an EU official said, referring to the EU Council of Ministers, which brings together the 27 member states.

This political scrutiny is partly aimed at ensuring EU funds are spent on “investments and reforms” in the regions and sectors most affected by the crisis, EU officials stressed.

The announcement of the details of the EU’s climate blueprint outlined in our Callaway Climate Insights report  last week was due to be announced today but was postponed to make way for today’s €750BN rescue package to be laid before the European Parliament.

Member states will also now be expected to follow the bloc's taxonomy rules, meant to determine sustainable investments, which the commission said would help ensure they “are in line with our long-term ambitions.”

Brussels also plans to come out with a new sustainable finance strategy later this year, as part of a broader push to green the bloc's financial sector.

Of the €750 billion announced Wednesday, €500 billion will be distributed in the form of grant aid and the rest in loans. This is a first by the EU in sanctioning mass grant aid — something that would normally be blocked by Germany, whose Chancellor Angela Merkel last week signaled it is now the way forward. 

Today’s announcement received a cool but not chilly reception from the so-called “frugal four” member states: Austria, Denmark, the Netherlands and Sweden.

Asked if she had taken their concerns into account, von der Leyen responded: “If I look at what they are asking for, it’s a modernized European budget … [with] 60 percent modern policies” such as research, climate protection and the strengthening of resilience in the health sector, she said.

She also noted that the distribution of funds would be linked to the European Semester scheme, under which the commission recommends economic reforms.

“We link the grants to the European Semester in a way that member states have to come forward and present their plans, and their combination with the European Semester gives a lot of confidence that it’s our common European policies that we will be able to put in place through investments and reforms, she said.

“The overall package, for example the allocation of money … will be decided together with a working group from the Council,” based on existing budget distribution keys, she added.

Meanwhile, the World Wildlife Fund (WWF) on Wednesday complained that the rescue package does not go far enough. European officials “are missing clear mechanisms for implementing and enforcing the green conditions to truly ensure that no money spent by Member States will go to harmful activities such as fossil fuels or building new airports and motorways,” WWF said.

Franziska Brantner, the German Green party’s spokesperson for European affairs,  however, welcomed the proposals which contained “grants in order not to drive the particularly affected countries into the debt trap and thus the next euro crisis.”

Germany’s presidency of the Council of the EU which comes into play on July 1 has  now “a special responsibility to work for the necessary majority in the Council,” she said.

She added that the overall proposal for the EU's long-term budget must become greener: “For the EU to be better, more sustainable and more resilient at the end of the crisis, the climate targets must be binding and ambitious,” she said.

“In the case of the [EU budget], every second euro must be spent on climate protection. Unfortunately, little has happened here, especially with regard to future agricultural policy. This contradicts the Green Deal and must be changed urgently in the negotiations.”

Sandrine Dixson-Declève, co-president of The Club of Rome, a loose grouping of scientists, business and politicians, commended von der Leyen and the commission for their 21st-century leadership and foresight. “Applying the ‘Do No Significant Harm’ principle will guarantee that we continue to build a low-carbon economy as we exit and recover from COVID,” she said.

“Make no mistake this will strengthen our economy, not weaken it. Europe has truly opted for a ‘Just Transition’, new jobs, and innovation over a ‘business as usual’ economic model that was broken,” she added.

The climate think-tank E3G was also broadly positive although it did express some reservations.

(About the author: Stephen Rae is a leading European writer who splits his time between Brussels and Dublin. He is the former Group Chief Editor of INM, Ireland’s largest online and print media group. He serves on the board of the World Association of News Publishers (WAN-IFRA) and previously served on the board of the World Editors Forum. He was appointed by the European Commission to its High Level Expert Group on Online Disinformation. Stephen grew up on Ireland’s southwestern-most Atlantic coast and has always been committed to green and biodiversity issues.)

Above, wind farm in Wexford, Ireland. Photo: Fitwebnet/Wikimedia.