24 September 2019
The majority of EU countries recognise the need to address the ever worsening climate crisis and support the goal of a Europe with zero emissions by 2050. A few notable holdouts feel the transformation would be too costly for their economies and populations in the short term. However, these countries were to persist in this opposition they would be left behind by the new industries and technologies necessary to be developed during this “green” transformation. Thus, to avoid a divergence along old, familiar lines policies must be forward, not backward-looking.
The new Commission President follows through with her prom ise to work towards the EU be coming the first major area with zero emissions. However, this goal is not shared by all member states, especially by some from New Europe. Since the V4 had already expressed their reservations to the European Council the last time it discussed a tightening of the emission reduction targets for 2030, there is an increased danger of developing an East-West divide over the topic. This a worrying sign, since the EU has staked much of its global reputation on being a thought leader and taking decisive action concerning the climate crisis.
Four member states have objected to a tightening of the EU’s intermediate climate goals, especially those for 2030, which becomes immediately relevant for the next MFF. These countries are also the ones with the highest emission intensity (CO2 emissions per unit of GDP).
The objecting member states argue that more ambitious climate goals would put an undue burden on them, taking into account their high emission intensities and their (still lower) income. They fear high costs of new technology that would impose relatively high costs – impairing their ability to catch up their western counterparts. Although CEE countries would have higher economic costs in the short run, the overall costs of the adjustment would need to be reduced. Moreover, the member states with the most stringent environmental standards might also gain technological leadership in key sectors, while those failing to adapt will fall further behind if they cling to their old industries.
To avoid this East-West clash on climate policy, the EU decides to reshape cohesion spending in order to help the most emission dependent countries reorient their economies in exchange for an agreement to speed up their transition towards zero emissions.
Experience suggests that the cost of reducing emissions is lower in what are currently high emission industries and countries. Given the high starting point in terms of emission intensity, industry in the V4 should have a lower cost of abatement compared with other areas of Europe. The V4 are, therefore, regarded as low cost producers of emission reductions rather than high volume emitters; a distinction that allows them profit from EU climate policy mechanism.
Industrial emissions represent an area where the relative cost of abatement plays the biggest role. Before the change in cohesion funding, the main focus was on the European Emission Trading System (ETS), which covers the power sector and industry and accounts for about 40 per cent of all emissions. This is a truly EU policy instrument with a EU wide cap and EU-wide annual reduction goals. The established goal already foresees zero allowances by 2050, meaning that, for these two sectors, a path has already been set towards carbon neutrality.
But the ETS is also a very decentralised policy, since it mainly works through a price signal and it allows for national specific situation in terms of the allocation of free allowances and other mechanisms.
Importantly, the new cohesion funding funnelled into switching to greener energy sources is just a part of the approach adopted by the Commission. Brussels accepts that a total switch to green technology is not always possible or feasible in the short run. The fate of old installations is not decided in Brussels, but by a market mechanism. Some installation with “dirty” coal technology might continue for some time. But the owners of other installations might close them down because they get more from selling the allowances than by operating old, inefficient plants.
The V4 governments realise that early action is less costly than attempting to keep old, inefficient, industrial structures alive as long as possible. A combination of Structural Funds and auction revenues is redirected to support the rapid reduction of carbon emissions in heavy industries towards higher energy efficiency and wholesale restructuring towards greener industrial structures.
Coal mines represent another challenge. Regions where employment used to depend heavily on the mining of coal are awarded special assistance for the requalification of the miners and a restructuring of the local industry. Fortunately, total employment in the industry is rather limited (less than 200 thousand for the EU), so the transformation of these regions is performed quite easily despite the political tensions arising from coal legacy.
After contending with these specific sectors, the biggest sources of emissions are transport and household heating. Transport is a priority for drastic reductions via the advent of electric cars, which are increasingly competitive and can be complemented by smarter approaches to mass transport. The latter will be massively supported by new cohesion funds and benefits from the fact that it is much cheaper to build a low carbon mass transport infrastructure from scratch, rather than trying to reshape existing one.
This leaves household heating, which is very much linked to the places where people work and live. With a focus on the 2050 goal, household heating might represent a more difficult challenge because of seasonal variations in heating demand. Partially, it has been addressed by cohesion funds directed at thermo-modernisation of households and replacement of ineffective heating systems. Following the logic that the funds should go where the cost is highest, these funds were allocated by objective factors, such as the average temperature or the number of days in the year requiring heating. Nevertheless, heating – especially in the north – is a difficult issue, and there is only so much that can be done to limit emissions. Some emissions are bound to remain.
The solution to reach zero emissions for the EU overall is achieved by allowing emissions related to household heating to be created in certain countries or regions which are then offset by negative emissions or “sinks” in other parts.
In concrete terms, the heating necessary in the northern part of the EU (which still requires limited emissions) is offset by carbon sinks fed by solar installations in the south. For the planet, all that matters is the EU total. That is why the new cohesion policy also takes into consideration such regional perspectives and only funds renewables where they are most efficient. Since national targets have been eliminated, the EU no longer tries to force renewable installations in suboptimal regions.
These approaches have several effects on the EU as a whole. In the first place, it helps to alleviate the political tension between old and new member states. The new cohesion policy makes sure that the cost of the green transformation was distributed in a fair fashion. This smart and flexible approach allowed the EU to create a broad policy that plays on regional strengths. Unavoidable or hard-to-immediately-reduce emissions were offset by sinks, such as efficient renewable installations where conditions are most favourable and large, widespread forestation efforts. At the same time, this pragmatic approach recognised cases in which the immediate departure from coal was not feasible and in such cases funding was directed towards increasing efficiency which yielded fast emission reductions where they were easiest to reap. This applied mostly to the highly coal dependent V4 industry.
A focus on climate change and emissions does not have to leave the poorest regions unhappy. On the contrary, they might benefit from new cohesion funding with a high quality, low carbon economy and infrastructure. It is only in those areas where these opportunities are not seen and used that a surge in support for populist parties is witnessed.