The Uncertainties of the Green Deal and Their Effect on the European Economy
Since the first weeks of being President of the European Commission, Ursula Von Der Leyen launched the European Green Deal. As mentioned in the communication of the EC, the European Green Deal aims “to tackle climate and environmental-related challenges; that is this generation’s defining task”. It is part of the EC ambitions to have a neutral economy by 2050. The scale and the scope of this initiative is too ambitions. Regarding the EC, the EU Green Deal seeks comprehensiveness and deepness at the same time and on the all sectors gathering together.
The European Green Deal (source)
Many concerns are raised by interest groups such as private companies, workers and also public institutions about the impact this deal will have on European economies. The first term of transition it is expected to be the Von Der Leyen mandate of 2019-2024, which seated the Green Deal atop its priorities. Any transition phase that has to deal with the economic effects caused by structural changes.
In order to reach the goal of neutral economy by 2050, EC has set-up a mechanism: Just Transition Mechanism (JTM), which will support the EU economies financially throughout the next three decades. It is one of the financial supporter mechanisms along with European Investment Bank. The total amount of financial support established for JTM is estimated to be around 7,5 billion.
The transition phase obviously will have a bill to pay in order to be implemented. The costs are estimated to be around 1 trillion euro, which is a huge amount of money compared to the EU annual budget. The economic sectors directly or indirectly attached to the Green Deal will be charged mostly of energy production and agriculture. Through the JTM, EC is aiming to help the private sector to adjust easily in this transition phase and meanwhile to reduce as much as possible eventual economic costs carried out by the shift of the economic structure.
Where will the money come from? (source)
Implementation of the Green Deal, mainly in the more dependent coal economies, eventually will influence the structure of markets. In the Eastern economies such as Poland or Romania, but also Greece too, coal production of energy goes up to 70% of the total national production. By saying that, the economic challenges for these countries will bring uncertainty to macroeconomic indicators. It is important to keep in mind that last June (2019), countries such as Poland, Czech Republic, Hungary and Estonia refused to sign the commitment to reach carbon neutrality in the next 30 years, because of their dependency on fossil fuels.
Regardless of the challenges its implementation faces, the European Green Deal obviously tends to make possible a sustainable development of European countries. Through the JTM, EC aims to broaden the scope of investment in order to have a flexible economy. In global economy, it is even more difficult to have a clear economic perspective when in the same time countries like USA, China or India are advancing so fast. The EU Commission draft considers this time as an opportunity for “economic growth and prosperity”.
The EU Green Deal eventually is expected to have consequences also on the economic structure of the countries affected. The shift toward a neutral economy unavoidably will impose companies to change the technology production. Probably not all the companies operating in the market will have the chance to be able to continue working. Even though, in the EU Green Deal draft it is mentioned that the initiative will financially support “projects ranging from creation of new workplace through support to companies, job search and re-skilling assistance for jobseekers”, the criteria and the evaluation mechanism of the financing are still unclear.
Identifying the EU Green Deal as a cornerstone of the 2019-2024 Von Der Leyen Commission on the one hand and the important political moment to push political and economic process towards a sustainable development on the other, would be considered as a significant sign for new investment in the economic sector which is highly related to the economic transition. Transport, for instance, is one of the quarters of pollution section in the EU. A shift towards sustainable sources of energy production will affect the European Trading System (ETS) as well. The aim to include in the EU ETS airline and maritime transport has raised concerns by the companies representators about the added costs.
The pressure of the Green Deal is present also in the agriculture sector. Farmers are one of the main parts of the EU budget and it is still unclear if the Green Deal will affect the Common Agriculture Policy (CAP). According to the EU Commission, the plan is to shift the focus from compliance to performance, and in such a case, measures such as eco-schemes should reward farmers for improved environmental and climate performance”. For the farmers the future is even more unclear about the “new technologies” referred in the Green Deal and sustainable foods system, especially after the EU Court of Justice decision to block currently the New Plant Breeding Technique (NPTs).
The financial support of the JTM, must gain also a political consensus on European Parliament (EP), in order to be implemented. Until now, among the EU member states does not seem to exist a broad consensus on the way how the JTM will be financed and how the money will be spent. There exists some political divergence between the members states whom are interested most on the pushing towards the Green Deal agenda and the other who in short terms may be losers from the initiative. There is still an ongoing debate about the budget, where divergences are mainly political, which seems to be the first difficult challenges of Charles Michael to lead towards an agreement and political consensus.
To conclude, the transition phase will be a test for EC if would be able to deal with challenges ahead and in the same time to keep European social cohesion. The shift towards a neutral economy, beyond the advantages in terms of opportunities for growth, circular economy, needs to take carefully into consideration the eventual effects that could be caused especially in the more fragile sectors such as agriculture, which will be affected. Social and economic cohesion should be taken into consideration and especially in such a difficult political time Europe is having actually.
Edited by Hiba Arrame
