What happened?

Europe looks to be going all-in when it comes to fighting climate change. By appointing Frans Timmermans, her second-in command, the new President of the Commission, Ursula von der Leyen, has clearly thrown political weight behind her green ambitions. She has vowed to up the EU target to “at least 50%” emission reductions by 2030 (compared to 1990 levels) and wants the Union to reach carbon neutrality by 2050. Interestingly, and against European tradition, von der Leyen has explicitly framed the European Green Deal as an economic program. Moreover, she’s called it “a long-term economic imperative” and claimed that Europe could thrive off its head start by exporting technology and knowledge to other parts of the world.

What does this mean?

Meeting these targets will be difficult and it is still questionable whether all member states will agree, as well as actually comply, with these targets. Among other nations, Czech Republic and Poland already blocked a similar deal in June. However, as we noted some time ago, the European carbon trading system is finally taking effect and its proceeds will be used to support these coal-dependent countries. The European Investment Bank will also back this green course and provide more funds for investments. Given that climate neutrality as such remains politically sensitive, foregrounding the economic rationale of climate action could help to win over skeptics. Yet, it remains questionable to what extent new economic activity, and hence new jobs, could (more than) compensate for the costs of this project. The economic outcomes of the German Energiewende are still unclear. Hundreds of thousands of jobs (maybe even a million) may have been created, as were more than a hundred thousand green startups, but hundreds of thousands of jobs disappeared as well.

What’s next?

If successful, Europe will be well ahead of the rest of world in terms of carbon reductions, but this will only have the desired effect if other regions follow suit. That is true for mitigating climate change (i.e. Europe alone cannot solve the problem) as well as for the economic gains (i.e. a global market for European technology and knowledge would need to emerge). To protect European businesses from global competitors (and prevent them from offshoring carbon-intensive production), von der Leyenhas also proposed a so-called carbon border tax that would put import tariffs on goods from “cheap carbon” regions. The latter plan fits with a more assertive European industrial policy, that not only aims for green business, but seeks to build European champions in other areas as well; a rumored €100 billion “European Future Fund for equity investments would mostly focus on digital technology.