European Green Deal

What is it about?

Introduction

The European Green Deal is a new growth strategy devised to reshape the EU economy. In the eyes of the Commission, its scale is unparalleled even in comparison to the post-war settlement in the West and the post-Soviet transformations in the East. The EU believes that this is a unique opportunity to be seized, with the urgent challenge of climate change being the vehicle to put it in poll position as the digital and green leader of the world. All EU policies and actions will have to contribute to the Green Deal objectives. The reader should bear in mind that the Green Deal project is just getting started and a vigilant analysis of its development is needed for at least the next ten years.

The backbone of the widespread reform is the determination to decouple growth from resource extraction and use, and to decarbonise the economy to achieve zero net emissions of greenhouse gases. Although the target date is 2050, there are many goals to be achieved earlier, in particular by 2030. Due to its massive scale and the political will of the EU authorities, this transformation will affect all economic sectors. However, some leading business areas will be affected more than others, so there will be a need for comprehensive legal assistance in the ongoing transition.

With this brief outline we open the series of Dentons publications where we will discuss the changes looming on the legislative horizon, the impacted sectors, and the practical aspects of preparing for the concomitant new obligations and benefits that are expected to come.

Sectors

General Guidelines

The flagship idea to achieve full climate neutrality in 2050 is preceded by specific actions and policies aimed at reducing greenhouse gases (GHG) to at least 50% of the 1990 levels by 2030. The Climate Law, the first legal document to be proposed, imposes not only the legal obligation of zero net emissions but also the trajectory of achieving it and plans of adaptation to prevent climate change. The extension of the already existing Emission Trading System to new sectors is also worth mentioning.

Energy

Energy production and its use, accounts for 75% of the EU’s emissions. Therefore, the transformation in this sector will be the most significant. The EU is clear as to its plans to phase out coal and decarbonise gas.

This opens incalculable prospects for renewable energy producers and forces current leaders to plan the smooth transformation meticulously. The Commission intends to prioritise offshore wind production, gas decarbonisation and interconnected digitalised energy markets. Investments in smart grids, hydrogen networks and carbon capture, storage and utilisation projects are envisaged. What is more, already existing infrastructure and assets are to be upgraded to fulfil climate resilience standards.

Industry

The EU assumes that the full transformation of industrial sector with all value chains will take 25 years. The general goal is to stimulate the development of leading markets for climate-neutral and circular products in the EU and beyond. Energy and resource intensive sectors will experience a major shift in terms of both decarbonisation and modernisation.

The Commission puts emphasis on the sustainability of products. Their circularity encompasses reducing and reusing materials before recycling them. Environmentally harmful products shall not enter EU markets and extended producer responsibility is to be reinforced.

Another key transition concerns the plastics industry. The new legislation will tackle over-packaging and waste generation. The economic value of waste is to be recovered and its impact on the environment avoided or minimised. By using legal instruments, the EU plans to create and boost already existing markets for secondary raw materials. We can expect obligatory recycled content for packaging, vehicles, construction materials and batteries, just to mention a few. What is more, the EU actively seeks frontrunners to develop the first commercial applications of technologies in key sectors like hydrogen, fuel cells, alternative fuels and CCS by 2030. The ETS Innovation Fund will finance large-scale innovative projects.

Construction

The transformation in the construction sector is to take the form of a renovation wave of private and public building. In order to boost their energy efficiency, the EU plans to take legal and economic steps. Starting with assessments of long-term renovation strategies of Member States, the Commission intends to include emissions from buildings in the ETS. New and renovated buildings at all stages shall be in line with circular economy principles and head towards increased digitalisation and climate proofing.

Mobility

The 90% reduction of GHGs in the mobility sector will be the most significant of all. To achieve this change, wide-ranging legal amendments are needed. The transition will be based on three pillars: the shift to multimodality, the substitution of inland road freight by rail and inland waterways and the Single European Sky for aviation.

In the eyes of the Commission, the right pricing, taking into account the impact on health and the environment, requires ending fossil fuels subsidies and the revision of the Energy Taxation Directive as well as tax exemptions for aviation and maritime fuels. Moreover, the reductions in free allowances for airlines and the extension of the EU ETS System are envisaged.

Congestion and pollution in urban areas are to be tackled by a massive investment in alternative transport fuels. One million public recharging and refuelling stations and 13 million zero and low-emission vehicles are expected on European roads by 2025.

Agriculture

For the time being, the Common Agricultural Policy (CAP) represents a big part of the EU budget. The Green Deal assumes that 40% of the CAP and 30% of the maritime fisheries fund shall be devoted to climate-related initiatives. The turn to precision agriculture, organic farming and agro-ecology, agro-forestry and stricter animal welfare standards entails significant legal changes to come in the next few years. The Commission announced a major reduction in the use of fertilizers, pesticides and antibiotics. The corresponding legal acts should be presented in 2021.

Conclusion

The Green Deal requires massive public investment and channelling private capital into its solutions. Between 2020 and 2030, €1 trillion is expected to be committed to the purpose. For the current climate and energy targets, €260 billion of additional annual investment is needed, which is equal to half of the Polish GDP. Circa 25% of all EU programmes will be devoted to finance the transition.

What is also worth mentioning, in particular for CEE countries, is the establishment of the Just Transition Fund. Its goal is to leave no one behind even in a situation of irreversible decline in employment and economic output. The EU has prepared legislative and economic solutions for sectors and regions that have to undergo the most significant transformation, resulting from inter alia dependence on fossil fuels.

According to the very recent conclusions of the special meeting of the European Council “An overall climate target of 30% will apply to the total amount of expenditure from the MFF [multiannual financial framework] and NGEU [recovery budget] and be reflected in appropriate targets in sectoral legislation”. EUR 10 billion is envisaged for supporting green and digital priorities under the Just Transition Fund until 2026.