European Corporate Leaders Group rapid reaction and analysis of EU Recovery PackageCLG
Director of the European Corporate Leaders Group (CLG Europe) Eliot Whittington said:
“This is a bold package that places the Green Deal at its centre and asserts the belief that building a clean, resilient European economy will be vital for future stability and prosperity.
“The level of investment outlined across the green elements of the package is substantive, although time will be needed to unpick exactly how much new green finance has been earmarked for the recovery. This financing will offer immediate economic and environmental benefits, including high quality jobs that have a chance of withstanding further shocks.
“The recovery package is not only about helping businesses and citizens to bounce back – it is also about preparing for the future. This package can drive investment into the key transformations needed to meet Europe’s net zero emissions target, including buildings renovation, renewable energy, clean mobility, industrial innovation and more sustainable land use and food systems.
“For Europe’s recovery to be sustainable, all investment must be consistent with the bloc’s ambitious climate and environmental goals, and clear safeguards are needed to ensure this.”
CLG Europe analysis of the EU Recovery Package
Europe has experienced an unprecedented social and economic shock as a result of the Covid-19 pandemic. The €1.85 trillion recovery package announced today aims to support the most vulnerable, create future-proof jobs and put Europe’s economy on a more sustainable and resilient pathway.
There is widespread support from business, cities and civil society for a green recovery. Last week 155 companies — with a combined market capitalisation of over €2.1 trillion and representing more than 5 million employees — have signed a statement urging governments around the world to align their Covid-19 economic aid and recovery efforts with the latest climate science.
Support for the green economy can be seen throughout the recovery package. The announcements include, amongst others:
- A Recovery and Resilience Facility and new REACT-EU initiative to support member states achieve a sustainable recovery, including supporting the green and digital transitions;
- An additional €32.5 billion for the Just Transition Fund, to support the clean energy transition and help workers and regions dependent on high-carbon industries;
- An expanded budget and a stronger climate focus for Horizon Europe innovation funding;
- A doubled ‘sustainable infrastructure’ window for the Invest EU facility, aimed at leveraging private sector investment;
- An additional €15 billion for the European Agricultural Fund for Rural Development, which can help fund environmental initiatives in rural areas.
The European Green Deal acts as a growth strategy for Europe and should be the priority focus for the recovery package. The recently-agreed EU Sustainable Finance taxonomy establishes a strong set of principles that can guide investment through the recovery. However, the package simply repeats rather than strengthens previous commitments for at least 25% of the budget to go to climate-related spending. A clear plan is needed to advance the proportion of climate mainstreaming in the MFF and recovery instrument, including an explicit timeline for the majority of finance through these instruments to be aligned with the Green Deal. Given the EIB has already presented a lending policy that commits to 100% Paris alignment and at least 50% climate and environmentally sustainable investment, the new MFF should aim to meet this level of climate alignment in the first half of its term.
The plan includes a commitment that public investments in the recovery should respect the green oath to “do no harm” – however it is not yet clear how this will be assessed. A failure to align economic recovery investments with EU climate goals would build up risks for the future, including the need for further bailouts. Clear methods and scrutiny are needed to ensure public money does not support activities that undermine the Green Deal goals.
A green recovery will make the European labour market more resilient to future economic shocks, according to a new European Corporate Leaders Group report. Investment in skills is critical to ensure new climate-neutral industries can access skilled labour in Europe and to support a just transition for workers and regions dependent on high carbon industries. The proposed expansion of the Just Transition Fund and the forthcoming Skills Agenda for Europe are critical steps to achieve this.
The package has potential to accelerate the transition in each of the key areas for achieving Europe’s net zero target:
- Renovating buildings: The Commission’s forthcoming ‘renovation wave’ to retrofit Europe’s buildings will be supported through funding through the new Recovery and Resilience Facility and the expanded budget for Invest EU. Buildings renovation is one of the quickest and most cost-effective ways of creating high-quality jobs, and serves to increase the spending power of consumers by lowering energy bills. Recent analysis shows renovating buildings in line with the net zero target is a €243 billion business opportunity for the EU-27, but needs innovative financial support to unlock this investment.
- Scaling up renewables: Renewable energy will be supported through a new ‘Strategic Investment Facility’ as well as the potential to access increased InvestEU funding. Business demand for renewable energy is increasing rapidly, and 235 companies have committed to going 100% renewable electricity via the RE100 coalition. Wind and solar are the cheapest forms of new power generation across Europe and in much of the world, according to Bloomberg New Energy Finance. However wind and solar projects have been disrupted by lockdown restrictions and are hampered by uncertainty on future power demand. The measures outlined will help to get Europe back on track towards a carbon-free energy system.
- Clean mobility: Electrification of transport is a clear growth sector. The Connecting Europe Facility budget will be increased to support the goal of ‘one million charging points, clean fleet renewals by cities and companies, sustainable transport infrastructure and enable the shift to clean urban mobility’. This will be welcomed by business: across the EU, EV100 member companies have committed to roll out charging infrastructure at over 1,000 company locations and are targeting the electrification of over 1 million vehicles by 2030.
- Circular economy and industrial innovation: The package offers support for growing the circular economy via the increased Just Transition Fund, and for accelerating clean industrial innovation through a larger and more focused Horizon Europe innovation programme. Circular economy measures create jobs in design, re-use, repair and recycling, while clean industrial innovation is essential for the productivity and competitiveness of European industry. A new European Corporate Leaders Group business briefing highlights that new financial mechanisms are needed to expand promising industrial innovations into mainstream economic models.
- Sustainable land use and nature: The European Agricultural Fund for Rural Development will ‘help farmers and rural areas to deliver the green transition’ – but it is not yet clear whether there will be deeper reform of the Common Agricultural Policy to bring it in line with environmental goals. The 2050 climate neutrality objective cannot be achieved without using nature-based solutions such as protecting and restoring natural ecosystems, complementing emissions reductions elsewhere. Nature-based solutions can offer employment (especially in the rural economy) and improve quality of life for European citizens.
- The Commission also announced an update to its work programme. Maintaining a high level of ambition in the European Green Deal – and keeping the legislative agenda on track – will give confidence to business and a direction of travel to the recovery. While some small delays are seen in the EU Green Deal programme, it is encouraging to see that the Commission will propose a new 2030 Climate Target Plan by Q3 this year. The European Corporate Leaders Group sees strengthening the 2030 target to at least 55% as essential for ensuring that we achieve our climate objectives and support global efforts to achieve the Paris Agreement.