Analysing whether the new Green Deal policies will help the EU achieve climate neutrality.
On 11 December 2019, the European Commission adopted the European Green Deal (Green Deal), initially proposed earlier in the year by the Commission’s President Ursula von der Leyen. The Commission also presented a communication (the Communication) on the Green Deal to the European Parliament. The Green Deal is intended to map out Europe’s strategy to becoming the first climate-neutral continent, by proposing a number of measures to reduce the continent’s greenhouse gas emissions and increasing biodiversity. This blog post will consider some of the Green Deal’s new proposals, and how those proposals aim to achieve the Commission’s “ambitious” targets.
4 Key Green Deal Policies
The Green Deal introduces a number of new policies that form the framework of what the EU terms, “the sustainable future”. These policies vary, both in terms of the areas they target and the level of detail the Green Deal currently provides on them. However, the Commission hopes that these measures will improve the EU’s green credentials and ensure the benefits of the transition to a zero carbon economy are felt by the whole population. Key policies include:
(a) Additional Climate-Related Targets for 2030 and 2050
In 2018, the Commission set out a long-term vision for how Europe will achieve carbon neutrality by 2050. However, the Green Deal states that, by March 2020, the Commission will propose a European “Climate Law” to establish a statutory basis for this target. By giving the plan a legal footing, the target likely will remain a key focus for policymakers in future administrations, whilst also providing investors and companies with adequate warning of a potentially significant change to the European economy.
The Commission has also pledged to develop a plan to increase reductions in the EU’s greenhouse gas emission target for 2030, by the summer of 2020. This plan will seek to reduce emissions by at least 50%, and towards 55% (as opposed to the previous target of 40%) “in a responsible way”, compared with 1990 levels. A number of environmental groups have criticised the 50-55% target as insufficient, with Greenpeace stating that, in order to abide by the Paris Agreement and be on track to meet their 2050 neutrality target, the EU would need to reduce emissions by 65% by 2030.
The Commission will also adopt a new strategy on adapting to climate change. The details of this new strategy, as well as the timing of any announcements to progress it, are notably absent from the Green Deal. However, the text of the Communication suggests that the strategy will seek, among other issues, to facilitate public and private investments in nature-based solutions to climate change.
(b) Mobilising Industry for a Clean and Circular Economy
The Commission has pledged to adopt an EU industrial strategy by March 2020, aiming to address “the twin challenges of green and digital transformation”. This wording resonates with a key theme of the Green Deal, that using ever-improving technology will be essential to meeting the EU’s environmental targets.
The industrial strategy will be announced alongside a new circular economy action plan. This plan will seek to stimulate the development of markets for climate-neutral and circular products, both within the single market and externally. The plan will be relevant to all sectors, but will focus specifically on those that are considered resource-intensive (such as textiles, construction, and plastics).
The Green Deal also acknowledges the importance of reliable, comparable, and verifiable information in enabling buyers and investors to make more sustainable choices in regard to the circular economy. It refers to the risk of “green washing” and the necessity for a uniform set of standards to distinguish between products and investments. Latham examined the EU’s current approach to this issue in November 2019.
(c) Sustainable and Smart Mobility
The Commission also announced in the Green Deal that, during the course of 2020, it will adopt a strategy for sustainable and smart mobility, recognising that: (a) transport accounts for nearly 25% of the EU’s carbon emissions, and (b) transport emissions will need to be reduced approximately 90% by 2050 in order to achieve the EU’s neutrality target.
This strategy will include proposing the extension of the European Emissions Trading System (ETS) to the maritime sector, and reducing the ETS allowances allocated for free to the aviation sector. The Green Deal does not include a timeframe for implementation, but these changes likely will be coordinated with global industry bodies in the maritime and aviation sector.
In addition, by June 2021, the Commission will propose revised emission performance standards for cars and vans, marking the final set of requirements before zero-emission standards are imposed in 2025. The Commission will also consider applying the ETS to road transport, though it has offered limited details on how this could be implemented.
(d) “Farm to Fork” Strategy
The Commission will, in spring 2020, present the “Farm to Fork” Strategy for consultation, which will seek to increase public awareness and demand for sustainable food. The strategy includes significantly reducing the use of chemical pesticides, fertilisers, and antibiotics, though the Green Deal notes that consultation with farmers and other stakeholders will be essential to implementing the strategy in a way that ensures harvests are still protected.
The Farm to Fork Strategy is also intended to contribute to a more circular economy, demonstrating the link between the policies contained in the Green Deal. The Commission hopes that this will be achieved by reducing the environmental impact of the food processing and retail sectors by taking action on transport, storage, packaging, and food waste.
Achieving the Policies Described in the Green Deal
The Green Deal acknowledges that, in order to achieve its aims, significant investment will be required from both the public and private sector. The Commission has proposed a 25% target for “climate mainstreaming” across all programmes in the EU budget, as well as allocating 20% of the revenue created by auctioning ETS allowances to the EU budget. These measures will be combined with investment from a number of funds, including devoting at least 30% of the InvestEU Fund to combatting climate change, and developing a “Just Transition Fund” to ensure support of regions and industries that may be especially impacted by economic transition (due a heavy dependence on fossil fuels or carbon-intensive processes). These measures will be detailed more fully in a Sustainable Europe Investment Plan, which was described by Vice-President Valdis Dombrovskis as a plan to “unlock €1 trillion of sustainable investment over the next decade”.
To encourage private sector investment, the Commission will present a revised sustainable finance strategy in Q3 2020. This strategy will focus on the continued implementation of initiatives such as the EU Taxonomy, Non-Financial Reporting Directive, and Climate-Related Benchmark Directive, which the Commission hopes will provide a stronger platform for investors wishing to deal in sustainable products.
The Green Deal also contains measures to try and ensure that progress in the EU’s sustainable development continues into the future. These include channelling increased funding from “Green Deal Missions” into a wide range of EU sustainability-themed research and development projects over the course of the next decade, additional resources being provided to Member States to increase sustainability education, and a wide-ranging “green oath” that all EU actions and policies should assist the EU in achieving its desired transition to a sustainable future.
How Effective Will the Green Deal Proposals Be?
The Green Deal provides numerous new and revised policy ideas, designed to “green” the future of the EU. Many of these proposals are bold in their aims, and have the potential to make a significant impact on economic sustainability in EU countries. On the other hand, the final version of the Green Deal is more muted in its language than an earlier draft, which was leaked the week before the Green Deal’s announcement. This — combined with news that, on the same day as the Green Deal was announced, Member States were encountering some difficulties in agreeing the details of the EU Green Taxonomy plans — suggests that the Commission may find it challenging to ensure the Green Deal has the impact that environmental groups hope to see.
However, the true extent of the Green Deal’s impact is not yet fully clear, given that many of the commitments are, at this stage, merely commitments to propose policy in the future. A number of the provisions, such as those surrounding regulations encouraging private investment, and the enshrining of the net zero target into law, are also confirmations of previously announced EU policy, so they do not as yet offer significant change.
Latham and Watkins will continue to monitor developments in this area.
This blog post was prepared with the assistance of James Bee in the London office of Latham & Watkins.