The race is on to stop EU stimulus going to polluting industries

There’s no denying the EU’s budget deal is a historic achievement. For the first time the European Union will embark on a large-scale borrowing programme with the specific purpose of redistributing those funds to parts of the Union that are facing tough times. Eurobonds have been talked about for as long as the Union exists, but now they are happening, as T&E said they had to a few months ago.

What is particularly pleasing is that the announcement of the plan and the final agreement are only separated by a few months. Usually the EU’s decision-making process is slow and tedious. That is a great weakness. People expect leaders to lead and to act decisively in times of crisis, not to make proposals that may or may not be adopted in two years’ time, which is usually what the Commission is forced to do.

But not this time. The reasons why are manifold. There was the prospect of widespread economic and social suffering in countries like Italy, Spain and France. Inaction could have further undermined these countries’ governments’ legitimacy and paved the way for demagogues, the end of the Euro and worse. There was also the realisation, particularly in Germany, that EU economies are now so interconnected that a depression in large parts of the Union would have also severely weakened more robust economies. 

The budget deal offers some gestures to green groups - though not far enough. Nearly a third of the funds must be used for climate purposes. Similarly, national recovery plans are supposed to be in line with the Green Deal and ‘do no harm’ if they want to tap into EU stimulus funds. But it’s unclear what actually counts as climate spending. The Commission currently considers part of direct income support to farmers to be ‘climate action’. It is also unclear whether the ‘do no harm’ principle would allow the Commission to stop countries spending EU money on fossil fuels. Considering that this is a deal on all the money that the EU will spend over the next seven years, and that we’re borrowing the money from our children, NextGenerationEU isn’t exactly the deal environmentalists were hoping for.

The good news is that the European Parliament still has a chance to improve the stimulus package and has already threatened to veto it unless concessions are made. MEPs can make the difference on all-important details such as what constitutes green spending, or the introduction of an exclusion list. Parliament was very vocal in demanding a real role in the budget negotiations - now let us hope that MEPs do their jobs. 

Some may argue that definitions and exclusion lists are not so important. And yes, there is a lot of lip service being paid to investing in a greener future. But the reality is that creating a stimulus plan is a messy process where politicians need to figure out how to spend tens of billions in no time. Incumbent industries have a huge advantage over new, clean-tech players in this game. They usually have big spending plans in their drawers (for example, building that new highway or rail line they could never justify in domestic budget discussions). Because they are incumbent they also have the means to get their way. 

What could possibly go wrong? For one, the car industry which has been very vocal in its support for an ambitious EU budget deal, will try to get a much bigger piece of the EU pie. So, expect a rerun of the scrappage scheme battle, which focused on how much EU money is poured into buying diesel and petrol cars and trucks. Indeed, the German recovery plan contained a plan to introduce a scrappage scheme for diesel trucks to be financed through EU stimulus funds. Whilst this is clearly a bad idea and a PR disaster waiting to happen, NGOs and think tanks must also offer alternatives. Using EU money to help car and truckmakers transform their factories and retrain their workers to get ready for rapid electrification is one idea. Another would be to use EU funding to help transition regions affected by car factory closures. Such ideas should be combined with commitments by car and truckmakers to step up production and sales of zero emission vehicles.

Whether or not we manage to stop EU subsidies for big diesel trucks or not, this deal will be an important part of Chancellor Merkel's already rich legacy. Only Germany could have made this deal happen. In fact, there is much truth in the old joke that EU budget negotiations can only be concluded by the German presidency because they’re the ones that ultimately have to finance the compromise.

The German presidency promises to be a watershed moment in other domains too. After summer the European Commission will come forward with its plan to increase EU climate ambition. This will include a proposal on the level of ambition, early indications on the future of the ETS, the effort sharing law, the renewable energy law and the CO2 standards. Then the Commission will start proposing its first laws - new battery regulations in October, regulations for clean shipping and aviation fuels by December - as well as an overarching strategy on smart and sustainable mobility where it is likely to outline what it intends to do on vehicle CO2 standards, charging and carbon pricing for road transport. To top this all off, November will see the mother of all election battles, and hopefully the end of the Trump presidency.

So, let’s all enjoy our holidays and get some well-deserved rest. It’ll be a hot autumn.

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About the author

William Todts's picture

Executive Director