“This is Europe’s man on the moon moment.” When Ursula von der Leyen, the new president of the European Commission, presented the European Green Deal during COP25 in December 2019 in Madrid, she surely had set the most positive and promising highlight of this COP.
What does the Green Deal, the EU’s new carbon reduction and growth strategy, mean for Europe’s climate policy? And how should businesses prepare for the changes to come? Stay with us as we summarize the main elements of the Green Deal’s packages and our experts share insights on expected impacts, challenges and opportunities from a business perspective.
Will Europe be the first carbon neutral continent?
While the overall outcomes of the COP are mostly discussed negatively, as talks were unable to reach consensus in many areas of the UN climate process, the EU’s bold commitment to ‘become the first carbon neutral continent by 2050’ created outstanding positive momentum. It was what many would call the highlight of the COP and a promising kick start of the new European Commission. The promise is thrilling, as the Green Deal’s ambition is not only to cut carbon emissions to net zero, but also to enable growth in the same time, thus supporting the industry to innovate and to become global leaders in the green economy.
The 2050 net zero target means a major strengthening to the existing carbon reduction path and climate ambition for 2030. The EU will need to increase its greenhouse gas reduction commitments from the current 40% to a 50-55% cut. The 55% figure will be subject to a cost-benefit analysis, decisions on which are to be announced in March 2020 at the earliest.
To enable the accelerated transition of the European economy, the Green Deal will require action by all sectors. The Commission has proposed a European Climate Law to turn the political commitment into a legal obligation and a trigger for investment. The announced 54 practical actions of the Green Deal can be summarized as follows:
- Decarbonization of the energy sector: The production and use of energy account for more than 75% of the EU’s greenhouse gas emission.
- Renovate buildings, to help people cut their energy bills and energy use: 40% of the EU’s energy consumption is used in buildings.
- Support industry to innovate in low carbon technologies: Aiming to become global leaders in the green economy and fostering circular economies.
- Roll out cleaner, cheaper and healthier forms of mobility: The transport sectors accounts for 25% of the EU’s greenhouse gas emissions.
- A new biodiversity strategy: Addressing the main drivers of biodiversity loss, including measures for Europe’s reforestation
- Farm to fork strategy: Aiming to transition Europe to a “green and healthier agriculture” system.
To address the different levels of maturity of the EU member states and “leave no-one behind,” the packages include a ‘Just Transition Mechanism’ to help regions most heavily dependent on fossil fuels. “We have the ambition to mobilize €100 billion precisely targeted to the most vulnerable regions and sectors,” said von der Leyen as she presented the Green Deal. While details how the strategy will transform are yet to be seen, our experts discussed the first findings and share recommendations for companies below.
Ekaterina Tsvetkova, Head of Sustainability Consultancy
Ekaterina has a deep understanding of the common challenges facing corporate professionals and has been engaging and advising corporations on their journey towards ambitious, science-based climate goals.
Early adopters will be the winners
When we look at the 54 actions of the Green Deal, it becomes clear that new policies will be required in a large share of the existing EU regulation including, among others, the Renewable Energy Directive, the Energy Efficiency Directive, the Emissions Trading Directive, the Effort Sharing Regulation, and the land use LULUCF directive. A new Climate Law is also set to be presented in March 2020. According to the proposed timeline, a draft for the new regulation and the EU’s increased 2030 climate target will be presented by summer 2020. This timeline is extremely challenging for member states, as it leaves little time for them to negotiate and endorse it.
Companies are likely to be faced with the same pressure to adopt the future regulation: there will simply be no time for long transition periods. We believe that organizations that already have ambitious climate targets and have successfully begun actions in the discussed transition areas will have the best chances to capitalize on the Green Deal. We also recommend to check possible support for R&D: 35% of the EU’s research funding will be dedicated for climate-friendly technologies and a series of EU research “moonshots” will focus on environmental objective – a great chance for innovators!
David Laszlo, Regional Market Manager Strategy
Having supervised procurement negotiations for and delivered energy advisory to a vast array of consumers, David is familiar with the available supply options in European markets and strives to develop innovative service solutions.
CO2 will become the leading commodity
The Green Deal relies heavily on a fast and deep transition of the energy sector. Unfortunately, some of the countries with the highest transition needs, such as Poland, Czech Republic and Greece with their reliance on coal power plants, already have a quite challenging relationship with EU climate policies. It is unlikely that their transition will go without difficulties. For example, Poland has witnessed political unrest related to rising energy prices. Already today, coal-generated power is a more costly option due to supply issues as well as tripled carbon emission prices, forcing Poland to import almost one quarter of its electricity from Sweden and Germany. Moreover, the Polish government had to seek the EU’s approval on a price limit for industries and freeze for households. These short-term remedies allude to uncertainty and motivate buyers to track developments even more closely.
At the moment, Poland is granted an exemption from the 2050 net zero goal—it is likely that other EU countries will need to step up their goals toward carbon positive to keep track. Hence why such news as Signify, the world leader in lighting, signing the first VPPA in Poland is a solace. Uncoupling energy supplies from a national market dominated by fossil fuel generation via VPPAs and other innovative supply options for renewables should (and is expected to) gain momentum.
A related proposal that has drawn not only attention but also sparked controversy is that of introducing a “carbon border tax”. As the EU increases its climate ambitions, the plan is to protect European industries against unfair competition. This bold idea is one to be watched, as companies in the future might need to factor in the broad range of tax scenarios.
Innovation in the supply domain must be coupled with flexibility in the physical world. The more renewables are generated and supplied, the more pressure or even disruption the energy ecosystem must face. Demand response, advanced grid management systems and efficiency are essential for guaranteeing such flexibility. A new EU energy market design is imminent and the need for it continues to feed expectations towards the Clean Energy Package.
Schneider Electric helps companies accelerate progress at any point on their carbon reduction journey. We invite you to join our Webinar on ‘Accelerated Action Toward a Net Zero Carbon Economy’ and hear from Novo Nordisk, Schneider Electric and WWF on their net-zero journey.