The fight against climate change has been placed at the center of the strategy of the European Commission since Ursula von der Leyen assumed the office of President of the European Commission in November 2019. Her ambitious plan to reach climate-neutrality by 2050 was already announced as a crucial point in her candidacy, under the name of the European Green Deal.
In fact, one of the three Vice-Presidencies of the Commission, headed by the Dutch Frans Timmermans, is exclusively meant to implement the European Green Deal. The deal entails the adoption of the first Climate Law of the European Union and an unprecedented deployment of funds to enhance it and reduce its side effects on jobs and traditional industries. It also contemplates many other initiatives aiming for a deep change in the relationship between social and economic ecosystems and the environment.
The European Parliament declared the climate emergency at the end of November 2019 with a large majority of the votes. In the same vein, the Commission expects to be a global leader in the green transition: since November, it is pioneering that transition by swiftly pursuing, inter alia, a circular economy, the enlargement of the EU Emissions Trading System, the EU taxonomy and measures to help third countries in going green.
The storm caused by the COVID-19 pandemic has raised many voices advocating for the European Green Deal not to be forgotten. The economic situation resulting from lockdowns and trade measures needs a strong recovery plan. This recovery plan will consist of huge investments coming, among other actors, from Member States, and the vindication has been widespread that these investments, unlike in the 2008 crisis, must take into account the green transition. On April 9, environment Ministers from thirteen EU Member States asked for the European Green Deal to be the cornerstone of the strategy for economic recovery. A few days later, the MEP from Renew Europe that chairs the European Parliament’s committee on environment and public health, Pascal Canfin, launched a Green recovery alliance. In his document/manifesto, he made a call to political actors, financial and non-financial corporations, and many other civil society organizations such as think tanks and NGOs to undertake an accelerated transition towards climate neutrality. And indeed, the Green recovery alliance has now more than two hundred signatories representing big corporations and political and social actors. "The public money that States and Europe will spend to reinvest in the economy must be consistent with the Green Deal", said Pascal Canfin in the launching of the Green Recovery Alliance.
In mid-March, the Commission recognized that the main response would have to come from Member States’ national budgets since the EU budget is more restrictively limited, and started announcing the enlargement of the use of State aid under its control. And although the expectations on the Commission to set green conditions on State grants to companies were high in the start, as I will now explain the result has been deceiving in this sense.
A temporary State aid policy relaxation
The Commission has adopted a Temporary Framework setting the conditions under which a company may receive State aid due to "a serious disturbance in the economy of a Member State", as laid down in the Treaty of Lisbon. Its main aim is to ensure liquidity and access to finance to allow them to recover from the effects of the pandemic, and it has been amended three times. The first time it included pharmaceutical companies; the second, the conditions for companies’ recapitalization; and the third was designed to grant more protection to "micro and small companies", in addition to clarifying and relaxing some aspects of recapitalization conditions. Before issuing the second amendment, Pascal Canfin already warned that State aid in this crisis "is a fundamental test for the European Union’s ability to deliver on its climate ambitions". Indeed, the Commission was undecided on whether to attach green strings to the grant of aid.
The recapitalization of companies is subject to conditions which seek to ensure a level playing field between Member States. These conditions are based on the necessity, appropriateness and proportionality of the state intervention, the entry and exit plans of the Member State, governance and the prohibition of cross-subsidization and acquisition ban. No green investments or ways of production are required to access recapitalization. The Commission only puts the burden on big non-financial corporations to publish every twelve months information on how they are allocating that financial support according to the green and digital transition policy objectives. But that burden only exists once the recapitalization has been carried out. Furthermore, recapitalization is a measure of last resort for companies in dire need. That means that a “green burden” will probably be very limited. The Commission could have accelerated the green transition partly through State aid: it is now a fact that States have to deploy great resources to save companies, and it is also a fact that sooner or later they will likely have to support their companies’ green transitions. So, why not kill two birds with one stone?
The level playing field is unquestionably at risk. Even before the adoption of the Temporary Framework, the Commission communicated its will to ensure "that harmful subsidy races are avoided, where Member States with deeper pockets can outspend neighbours to the detriment of cohesion within the EU". In fact, more than half of the State aid approved during the crisis by the Commission comes from Germany. There is an actual exposure of growing economic disparities between Member States, and the Commission has acknowledged that. However, it has also stated that under the current circumstances, Germany may be the "locomotive" of the European economic recovery. That same reasoning could be applied to the environmental emergency: recapitalized companies could have been the “locomotive” of a green recovery.
An uncertain implementation
Overall, expectations were clear and advocacy strong. Unfortunately, national governments have only been encouraged to "design national measures in line with additional policy objectives, such as further enabling the green and digital transformation of their economies". According to the second amendment, there is no obligation on Member States to impose green conditions and a non-green recovery is not a ground on which State aid can be rejected. France, for instance, has followed this recommendation: State aid conceded to automotive industry companies, namely Renault and PSA Groups, includes a strong plan to promote electric vehicles. But that may not be the case in many other Member States and industries.
While it cannot be denied that the Commission has taken important steps in the fight against climate change, there are matters where more ambition could have been shown. For instance, the recovery plan proposed by the Commission, known as Next Generation EU, which entails a 750 billion budget, only allocated 55 billion to the green transition. This was the very initial proposal: it decreased to 45 billion a few weeks later - and only 17,5 billion have finally been approved by Member States to this end. Notwithstanding, regardless of the final result, the amount initially proposed does not show the Commission to be placing the climate challenge at the center of its policy.
Another curious fact of a climate change centered Commission is that it has postponed the enactment of the Climate Law. The latter was announced in December 2019 as the first measure to be implemented within the framework of the European Green Deal. In September 2020 the target of reduction of emissions —currently set at 40%— will be revised to be increased up to 55%. And it is not until June when the compatibility of EU legislation with the increased target will be assessed.
To sum up, the Commission had the opportunity to boost the Green Deal and link its future budget to complement State aid granted on a green basis during the last months. That would have been the natural path to follow up on the European Green Deal Commission’s main goal. We have yet to see how other matters unravel to determine whether the Green Deal effects will be as ambitious as its intention. Will Next Generation EU and the Pluriannual Financial Framework successfully contribute to the green transition? Will the target of reduction of emissions by 2030, the reviewing of which has been postponed, be effectively increased and implemented? The answer to both questions is blowing in the wind.