A New Year’s resolution for the European Union – make of the new 55% GHG reduction target an engine for growth and innovation

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2020 has been a year of milestones for the European Union; an agreement over an ordered Brexit, an unprecedented €750 billion recovery plan, and an investment Treaty with China are among some of them. But perhaps, the most significant decision by the EU has been to upgrade the greenhouse gas emissions reduction target from 40% GHG reduction to 55% by 2030.

The endorsement of a 2030 EU climate target to a GHG emission reduction of at least 55 percent is a point of ‘non-retour’ in how considerations about climate change rule economic development in Europe.

As a result, the EU institutions are planning to develop a set of ambitious regulatory proposals to deploy sustainability across the board. The EU is going to change and/or add between 30 to 50 regulations in the few years to come, with a significant impact for our societies, from how we design an electrical battery to the kind of subsidies given to farmers. In particular, EU legislation on renewable energy and energy efficiency will also need a substantial upgrade.

Concretely, it means the EU shall phase out coal almost entirely by that date, according to experts[1]. It means that buildings and the electricity sector will make the largest and most cost-efficient contribution to reaching 55 percent emissions cut. The EU must have 35 million building units renovated by 2030.

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The recovery plan, decided in the aftermath of the first COVID-19 wave in Europe, is going to fuel the level of investment in that field since more than 37% of the €750B stimulus package has to be focused on climate related issues in the next three years.

However, achieving the 55% goal also represents “a significant investment challenge”, the European Commission warns, saying investments in clean energy will have to increase by “around €350 billion per year” in order to achieve the new 2030 objective.

The recovery plan will fill part of the gap but not entirely; therefore, regulatory signals combining high ambition level and economic attractiveness will be critical to get massive private investment: “getting the economics of deeper decarbonization right is vital to keep the process unfolding” as it was argued by Simone Tagliapietra from the EU think-tank, Bruegel on one of his blogs.  If done right, the European green deal could have a domino effect on what other countries of the world will be doing. It is the first mover advantage.

There are examples showing Europe can win the investment race by sending very strong policy signal. For instance, thanks to the combined efforts of the EU institutions and Members States, Europe is sinking billions into beating Asia on batteries – Europe poured €60 billion in 2019, a whopping 19 times more money than it put into them in 2018. Yet, Europe lacks pure play battery manufacturers to take the global leadership in this field.

In conclusion, the major success factor of the EU green deal is that it could generate the sort of high-tech businesses that Europe greatly needs to regain competitiveness. One of the New Year’s resolution for Europe must be that the 55% GHG reduction target by 2030 leads to massive investment in key sectors such as buildings renovation and electrification where digital and innovation are at the cornerstone of the efforts.

[1] Climate Analytics, 2019

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