How to meet financial needs that live up to the European Green Deal and support economic recovery? Which mechanisms can bridge new and existing divisions? What should spending priorities be?
Rasmus Andresen, Member of the European Parliament for the Greens / EFA, Niklas Nienaß, both Members of the European Parliament for the Greens / EFA and Patrick ten Brink, European Environmental Bureau in a conversation with Lisa Tostado , Head of Head of International Climate, Energy & Agriculture Programme, Heinrich-Böll-Stiftung European Union.
Lisa Tostado: On 27 May the European Commission presented a new Recovery Plan under the umbrella of the Multiannual Financial Framework (MFF) and there have been discussions over the spending priorities of these new investments, their nature, and their conditionality. While there is a great need for additional funding in the face of the coronavirus pandemic, there is also the investment gap in the ambitious objectives laid out in the European Green Deal.
So, my first question concerns the European Green Deal itself and how to finance it. The Commission has pledged to mobilise up to €1 trillion of additional climate-related investments over the next decade and half of that is expected to come from the next seven-year EU budget. Studies show that an additional yearly funding of up to €180 billion is required to deliver the 2030 climate energy targets alone. How can these needs be met, both within but also beyond the MFF? Does the current proposal of the MFF live up to the European Green Deal objectives and what exactly should spending priorities be?
Rasmus Andresen: The proposal from the commission suggests spending €500 billion in grants for public spending and an additional €250 billion for loans. While we are facing the biggest economic crisis since World War II, we need to be careful to not just act in crisis mode, but rather in a way that also aids the transition to climate neutrality by 2040, as the greens are proposing, or by 2050 as the Commission says.
After having welcomed the proposal in general, we have to look at the details, where we can see some problems. We can see that the Commission is still proposing that 25% of the MFF should be spent for climate investments, which won’t be enough to transform into a climate neutral society. We are proposing 50% and the parliament is saying at least 30%.
I would like to add that it’s not just about spending more money for climate friendly infrastructure, it’s also about looking at what projects we are spending money on and what the climate-harming element is. Giving fossil fuel subsidies through the European budget for example. We need to spend more money on infrastructure and transport and change the way we are spending money on agriculture or on energy. As of now, we can’t see bigger changes here.
What is the view from the European Environmental Bureau on whether the MFF proposal is actually holding up to the European Green Deal objectives and how these could be met?
Patrick ten Brink: There are some elements which are very good, for example, the commitments on building renovation, and vision for renewable energy, but there are also a range areas that are lacking or weak, such as support for agro-ecological practices and a real push beyond waste for the full set of circular economy measures, i.e. supporting repairability. Each of these are labour intense activities, creating jobs for Europe while supporting climate and the wider EGD.
The MFF is substantial. With the 1% of GDP plus the additional measures, it should be around €3 trillion. But this is arguably little when compared to the amount of money that the national governments have and far from sufficient to address the actual climate challenge. The investment gap you cited refers to the 2030 GHG reduction target. The investment gap will of course be higher with a reformed 2030 target - the target that we currently have is too weak and is expected to be strengthened.
So, what we need is to make use of the money from the MFF as important leverage. In addition, we need to make sure there’s more national funding and we also need to make sure that national funding focuses on the right priorities. In addition to the public funds at a national level you also need to have private sector funds, and this is where the progress on the green taxonomy is particularly welcome and we need to make systematic use of the green taxonomy tool.
And finally, of course, citizens play a role as well through domestic spend, whether it’s on building insulation or solar panels. Furthermore, we need to be particularly careful about the fact that we only can spend the money once, so we need to make sure spending targets investments that save us money and provide returns. For example, energy efficiency will save household’s money; renewables will save countries money in terms of import costs of fossil fuels. Each of these things actually improves resilience in the future, so we need to focus on future-oriented spending that moves us forward and supports economic and social resilience.
My next question concerns the rising in equalities and different gaps that exist within European countries that the pandemic deepened even further. A new coronavirus adjusted MFF may shift funding from the East to the South which can create dissatisfaction for some member states, all the more if political strings are attached. It also requires higher payments overall. There are some countries that are wary when it comes to common debt. How do you think we can obtain a compromise that all member states and regions can live with? What role do other finance mechanisms linked to the Green Deal, such as the Just Transition Fund (JTF), play?
Rasmus Andresen: I think these debates are directly linked to each other because you will not get a greener society without having an equal society. That is why we need to look at things together. Related to the MFF, that means we need to fight for a strong MFF in the upcoming weeks to ensure that not just member states hit hardest by the economic crisis are benefitting, but also countries that need support on a social dimension and on a greening dimension.
It is important that we change the old cohesion policy, where Eastern European countries are getting a lot of money, in a greener way than we had done before. But having a strong climate conditionality doesn’t mean that we are not interested in a strong social dimension; we need to combine these different elements so that we are fighting inequality and climate change at the same time.
Niklas Nienaß, can you elaborate on the political divisions in the groups that you are active in and how to overcome them?
Niklas Nienaß: The classic problem that we saw, for example with the JTF, is the one of the “frugal four” and the friends of the cohesion policies. So, that’s basically North versus South-East. Then we also have this division between the East and the West.
It’s interesting that the Northern countries who want to save more money usually want to do a little bit more against climate change, rather than the friends of the cohesion policy who just want to get money unconditionally. This divide was taken into consideration in the JTF in that it made sure everybody gets money out of it, even though the JTF is supposed to support phasing out coal in coal regions primarily. Now the second issue is conditionality, for instance on the rule of law, but also ecological criteria. But now with the coronavirus crisis we see a taking back of that and especially the rapporteur for the JTF file from Greece, who wants to transform their economy into a gas-driven economy and therefore wants to support gas infrastructure with the JTF.
So, we need to be very critical on those issues and the fights will be very hard in the next weeks, especially concerning phase-out dates and further investment on fossil fuels with a lock-in effect. We have little time and need to be finished by 1 January 2021.
Patrick, do you want to add anything on the political problems? How could Germany play a role in bridging the divides between the East, West, North and South?
Patrick ten Brink: First of all, I agree with what Niklas Nienaß and Rasmus Andresen said about the Just Transition mechanism conditionality and also I want to point out that transparency is also a key aspect so people can actually see where the money goes.
I also fully support the growth in the funds allocated to the Just Transition mechanism. The European project really needs European solidarity at this moment. So, there is a need for using all the instruments possible, the Just Transition mechanism is a good way of getting certain countries on board.
The issue of some sort of debt mutualisation is also important in light of the political context. In terms of the German presidency and the recent change in position by Chancellor Angela Merkel, I think it is very positive to now have created an opening or a willingness to think about having bonds in the times of the coronavirus. But again, it can’t just be something which is offered without any conditions.
Niklas Nienaß: I think it is very important for Germany to not just be the supporter of the West but really to bridge over to the East and bring those member states into the community of everybody and not just having two fronts against each other.
My last question concerns the debate on generating own resources and which has just picked up again. Could that be a way to reconcile the “frugal four” and other countries that have called for greater solidarity during the crisis? What are some risks and opportunities associated with such own resource approaches and what are the major political barriers that need to be overcome? And what could that mean for European democracy?
Patrick ten Brink: Just to start on the environmental side, I think there is a need to move towards a proper carbon tax. But it needs to be done together with the ETS reform, linked also to the border adjustment mechanism to make sure that there’s no concerns for international competition. Additionally, it’s fundamentally important to ensure that it’s linked with a range of wider social measures to ensure equity, affordability and fairness. At the same time, it needs to be launched in a package with the energy tax and the plastic tax, for example, and the revenues could usefully be earmarked to facilitate the green transition in the countries.
Also, none of the coronavirus packages should pay anyone any money who doesn’t pay taxes in the EU. If they have their companies in offshore non-taxable areas, there should be no government support anywhere in Europe for them; it has to be a fair game between paid taxes and getting taxpayer support.
Rasmus Andresen: For me, the best option would be to have some strong European taxes. Some taxes will be a higher burden for some of the member states, maybe some states will be hit harder by the crisis than others and there is an argument there. But in a way I think we need to overcome these national distribution measures and for me that means that we need to look at what kind of concentration we have in our society and where it makes sense to tax related to the priorities we are setting, and the first priority is the green priority. Another priority is the digital sphere.
We need not just some commitments from the Commission, or some more abstract political declarations; we really need to look at how to implement them now. My fear is that at the end there will be a political declaration about the need to work on the digital tax for the next years and nothing will happen afterwards because there is no political pressure for some of the member states voting in favour of that.
Niklas Nienaß: Nobody wants to tackle the tax debate because nobody wants to pay taxes. To explain why we need them, it’s important to talk about equality. Nobody came into this crisis because of their wrongdoing, it’s a disease and we have to do everything to help everybody in the EU to get out of the crisis again. And to pay for that, we need to look at how to finance it and then we can really see that the taxes proposed do make sense.
Even though we can’t earmark taxes directly we need to explain what we want to use that money for and in what direction they want to go. One thing that Europe can really show is that Europe is the people and the German Presidency can focus on supporting the regions, the municipalities and the cities to get direct funding, to have their own climate action plan at hand.
Thank you so much for all your insights.
The conversation took place on 29 May 2020.
More information and a helpful overview over the Commission's MFF and recovery plans here.