The EU's Green New Deal: A Primer
In her recent state of the union address, Ursula von der Leyen, President of the European Commission, outlined her target of reducing the EU’s carbon emissions by 55% by 2030. This new target (up from a previously stated 40%) came with a reiteration of the EU’s commitment to the Green New Deal, a plan to invest 25% of the EU’s budget in transitioning the European economy to climate neutrality by 2050. This plan will not only ensure that the EU’s energy system is decarbonized, but also that everything else, from construction to transportation, is climate neutral—a major boon for renewable energy sectors such as wind or solar photovoltaic. This represents an important opportunity for the renewable energy industry, which will have to grow rapidly to meet surging demand. Below are some key points about the EU’s Green New Deal, and its implications for the renewable energy sector:
- The EU’s Green New Deal is a two-pronged approach to reaching the EU’s target of a completely climate neutral economy by 2050. The first of these prongs is regulation and legislation, which will limit and discourage the use of technology and practices with negative impacts on climate change (such as fossil fuels). The second of these prongs is investment, which will seek to boost sustainable industries and projects within the EU.
- With respect to regulation and legislation, the EU Green New Deal outlines the need for further use of carbon pricing, as well as legislation regulating land usage that limits the construction of new projects likely to harm the environment (such as coal plants). However, such regulation will still be contingent on the actions of individual national governments.
- However, the investment prong of the Green New Deal will occur at the continental European level. Through its European Green Deal Investment Plan (EGDIP), the EU has made the private sector central to its Green New Deal. Over the next decade, the plan will mobilize €1 trn in funds (with €503 bn already committed from the EU’s own budget) to invest in sustainable public and private projects assisting the EU in transitioning to a completely climate neutral economy—such projects, which will be classified under the EU’s taxonomy, range from solar plants to individual electric car charging stations.
- Of the €1 trn allocated by the EGDIP, €100 bn will go to investing in those European regions most vulnerable to the transition, thus creating more opportunities for investors in renewable projects throughout Europe. The European Commission also created the Just Transition Fund, which will receive €7.5 bn on top of funding from the EGDIP to invest in start-ups, SMEs and incubators assisting in the transition to a green economy.
- Beyond its immediate monetary commitments to the private sector, the EGDIP also encourages public authorities to facilitate sustainable finance through legislation (i.e the Spanish government’s renewable energy auction, planned for the second half of 2020).
- In light of the Covid-induced economic downturn, President Von Der Leyen also made it clear in her state of the union address that the principles of the Green New Deal would take center stage in NextGenerationEU, the EU’s €750 bn recovery plan for the European economy. In her address, President Von Der Leyen declared that 37% of the recovery plan will be spent on Green New Deal objectives, while 30% of the funding for the recovery plan will be raised through green bonds.
- Governments across the EU are already working to transition the European economy (such as in the Spanish government’s recent move towards boosting the Solar PV market), meaning the Green New Deal will result in an influx of funding into sustainable projects and a secure policy climate for such investments to thrive.
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